Reuters
Rome
Italian Prime Minister Matteo Renzi said yesterday that his newly announced plan to slash taxes over the next three years was a pact with citizens that went hand-in-hand with needed reforms.
In an interview with RAI state television, Renzi said he had spent six months preparing his plan – announced on Saturday – to abolish a hated property levy next year and make further tax cuts in the future.
“I propose a pact to Italians: If the reforms go forward we will be able to lower taxes by €50bn over five years,” Renzi said.
He included cuts made since he took office at the beginning of last year.
His term ends in 2018.
The prime minister’s linking of tax cuts and reforms may be a bid to temper parliamentary opposition to the institutional overhaul, which includes a constitutional change to strip the Senate, where Renzi has a narrow majority, of lawmaking powers.
Coupled with the new electoral law passed in May, the constitutional reforms are designed to bring more stable governments and more efficient lawmaking.
Other promised reforms include changes to the justice and tax system and the public administration.
On his Facebook page, Renzi said that the cuts would build consumer confidence and make Italy more competitive as the eurozone’s third-biggest economy pulls out of a three-year slump.
Without mentioning details, Renzi told RAI that he “had the numbers to bring home the plan and to continue to lower debt”.
Italy’s public debt of more than 130% of national output is second only to Greece’s in the eurozone, and the failure to come up with convincing measures to plug the revenue shortfall would put the country on yet another collision course with the European Union’s strict spending rules.
Renzi’s government has already lowered taxes for low earners and reduced a regional corporate levy on labour, measures valued at about €15bn.
That suggests Renzi sees the overall cuts promised for the next three years amounting to about €35bn ($38bn).
However, the government still must cut billions of euros in state spending to fund past tax reductions or there will be automatic increases in excise and value-added taxes.
Next year, because of a court ruling, Italy must give state employees pay raises for the first time since 2010.
“Renzi still has to tell us where he will get €51bn,” Renato Brunetta, chief whip for Silvio Berlusconi’s opposition Forza Italia party in the Chamber of Deputies, told the La Stampa newspaper.
The €51bn figure given by Brunetta, an economist, is his estimate of Italy’s revenue shortfall should Renzi’s plan be adopted.
Also interviewed by La Stampa, Economy Minister Pier Carlo Padoan sounded more cautious than Renzi.
Instead of saying that the tax on primary residences would be abolished next year, as Renzi has, he said it would be “revised with the introduction of a local tax”.
Also part of Renzi’s programme are cuts to corporate taxes from 2017 and to personal income and pension taxes from 2018.