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Italian Budget Proposes Substantial Corporate Tax Cut

by Ulrika Lomas, Tax-News.com, Brussels

01 October 2007


An ongoing crackdown on tax evasion and a squeeze on government spending has allowed Italian Prime Minister, Romano Prodi room to propose cuts in corporate and other business taxes in the 2008 budget.

After a marathon Cabinet session which began on Friday afternoon and lasted until early Saturday, Prodi managed to reach an agreement within his fractious coalition government, satisfying the demands of business with tax cuts, and the left with tax breaks and credits for low income workers.

The proposal to cut corporate tax to 28% from 33%, described by one government official as the largest one-time cut in Italian history, is the stand-out feature of Prodi's budget. There is also provision for a small cut in the local business tax, although this will be funded partly by cuts in government subsidies to industry.

The 2008 budget is in marked contrast to the one unveiled this time last year, described by critics as a 'bash-the-rich' budget, which increased the top rate of income tax and proposed tougher measures to ensure taxpayers declared their earnings, alongside a crackdown on tax evasion. However, it could be argued that these policies have now borne fruit for Prodi, allowing him to trim Italy's budget deficit to below the 3% of GDP ceiling set by the European Union, generating an extra EUR18 billion for the government to spend on business tax cuts, and improving the lot of the working class.

However, nothing is ever certain in Italian politics, and the budget, which was due to be put before the Senate where the nine-party governing coalition has just a one seat majority, will likely go through several revisions before eventually passing into law later this year.

TAGS: Italy

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