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'Save Italy' Budget Is Approved

by Ulrika Lomas,, Brussels

27 December 2011

As expected, the Italian Prime Minister Mario Monti has obtained the approval of both houses of parliament for his ‘Save Italy’ budget, which has suffered few modifications, except for those previously agreed by the government.

It has been emphasized that, despite continued opposition from, in particular, the trade unions to the pension reforms in the budget, its major thrust has been maintained – assurance to both the European Commission and the financial markets that, by taking a net EUR20bn (USD26bn) out of the fiscal deficit, the Italian budget will be brought back into balance by 2013.

It is noteworthy that by far the greatest percentage of the budget’s fiscal correction has been found from increased tax revenues, with relatively minor funds being released by public spending cuts. In fact, additional taxation will provide 85% of the needed resources in 2012, 79% in 2013, and 74% in 2014 – despite the fact that the tax increases are expected to exert a negative influence on the economy.

The greatest slice of revenue is to arrive from the introduction in 2012 of IMU, the new unified property tax, at a rate of 0.40% applying to first residences and with all other residences being subject to the expected standard rate of 0.76%. This extension of local property taxes to primary residences, accompanied by a 60% average increase in the official value of properties, should bring in an extra EUR10bn per year.

To alleviate the effect of the tax on families, the budget now includes an allowance of EUR50 for each dependant living in the home, up to the age of 26 years. The new dependant’s allowance will permit the original IMU threshold of EUR200 to be raised to a maximum of EUR400.

There will also be an additional annual levy of 0.4% on financial funds declared during previous tax amnesties, which is now made permanent and will be increased to 1% in 2012 and 1.35% in 2013. There will, from this year, also be a levy of 0.76% on the purchase cost or market value of property held abroad by individuals, and of 0.1% (rising to 0.15% in 2013) on the market value of their foreign financial assets.

Many changes were made to the tax, from 2012, on powerful cars, private aeroplanes, helicopters and boats. For example, ‘foreign’ private planes (those registered in Italy) will be taxed if they remain in the country for longer than 48 hours, while the level of tax on cars and boats will be reduced depending on their age.

Monti appears to recognise that, in this budget, he has called on taxpayers to make “many sacrifices”. It is known that the government is now studying various measures for the New Year which will be aimed at stimulating growth in the economy, and, in addition, is looking at how it can avoid the prospective increase of 2% in the 10% and 21% rates of VAT in September next year, which has been included as a fall-back if it is foreseen that the balancing of the budget will not be reached in time.

TAGS: individuals | tax | economics | value added tax (VAT) | property tax | fiscal policy | vehicle tax | budget | tax rates | Italy | revenue statistics

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