Italy cuts tax in surprise move despite promises on EU budget targets
ITALY unexpectedly cut income tax rates for the country's lowest earners while promising to stick to the budget goals it has agreed with the EU.
After an eight-hour cabinet meeting that ended early this morning, the government said it would also halve a planned increase in sales tax rates to a single percentage point.
Italy is due to hold parliamentary elections in about six months.
"Today we can see that budget discipline pays and makes sense" because "we can allow ourselves some moderate relief," Prime Minister Mario Monti said after the meeting.
The severe austerity imposed by Monti since he took over an unelected government in November has exacerbated a year-long recession in the euro zone's third-biggest economy and been a focus of criticism by all political factions.
He increased taxes and cut pensions to put the public accounts on track and head off a Greek-style debt disaster.
Monti has repeatedly denied he would stand in the election but did say he would serve his country again if asked following the vote.
Italy will reduce by a percentage point the two lowest income tax rates.
The rate will drop to 22pc from 23pc for those earning less than €15,000 per year, and to 26pc from 27pc for salaries between €15,001 and €28,000. The top three rates will remain unchanged.
Italy will balance its budget in structural terms next year, as it has pledged its EU partners it would do, according to a statement from the cabinet meeting.
A second round of cuts to health care spending and other state expenditure, a new tax on financial transactions and "fiscal interventions" for banks and insurance companies will help pay for the measures, according to a statement.
The savings should amount to €3.5 billion per year when at full regime, the government said. Savings from a previous round of spending cuts will total €4.4 billion this year, and €10.3 billion next year.
Also decided during the cabinet meeting was a reform to the constitution to centralise spending controls over the country's 20 regional governments, which have been the focus of a recent series of high-profile corruption scandals.
That will involve reforms designed to regain coordination of spending on energy, tax collection, and the national transportation network.
Also to address corruption, the position of anti-corruption commissioner, who will be given investigative powers, will be created with the passage of the budget.