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Latest update: 13/08/2011
- Economic crisis - economy - Italy - Silvio Berlusconi
Italy tightens its purse with tough austerity measures
Italian Prime Minister Silvio Berlusconi announced a spate of tax hikes and spending cuts on Friday as part of a tough austerity package worth a total 45.5 billion euros in a bid to balance the country’s budget by 2013.
REUTERS - Prime Minister Silvio Berlusconi announced a painful mix of tax increases and spending cuts on Friday to meet European Central Bank demands for action on shoring up Italy’s strained public finances.
At an emergency evening cabinet meeting, the government adopted an austerity package worth 20 billion euros in 2012 and a further 25.5 billion euros the following year to bring the budget into balance in 2013.
The measures ranged from a special levy on incomes above 90,000 euros to higher taxes on income from financial investments and cuts in the cost of government, notably through a cull in the number of local politicians.
The ECB demanded accelerated deficit cuts from Italy as a condition for buying its bonds on the market after a sell-off sent Italian borrowing costs soaring and threatened to put the euro zone’s debt crisis on a new, unmanageable plane.
Berlusconi, who frequently boasts of “never putting his hand in the pockets of Italians”, said he agreed to the tax increases only reluctantly and the decision made his “heart drip blood”.
“We are personally very pained to have to adopt these measures,” he told reporters after the cabinet had approved the plan.
After days of criticism for a lack of clarity over how it intended to meet the balanced budget target, Berlusconi and Economy Minister Giulio Tremonti delivered a harsh dose of austerity for Italy’s fragile economy.
Before the announcement, Italy’s biggest unions had pledged to oppose measures which hurt ordinary Italians including pensioners.
“The tax hikes certainly won’t help the economy, which is already stagnating, and consumer confidence is sure to fall further, » said Raj Badiani, an economist at IHS Global Insight.
“The new fiscal measures appear to be credible, but the real problem is on the reform front. We need a timeline for measures to liberalise the service sector and labour markets.”
Barclays Capital cut its forecast for Italian economic growth in 2012 to 0.7 percent, just over half the government’s official 1.3 percent forecast.
The package, adopted by emergency decree, must now be approved by parliament within 60 days. More details may emerge at a news conference called by Tremonti on 0900 GMT on Saturday.
Despite a huge public debt, Italy, the euro zone’s third largest economy, had kept out of the crisis until last month when doubts over its slack growth and the government’s ability to control finances triggered the selloff of Italian bonds.
Resistance
“The austerity plan is not perfect but it’s probably the best we could have hoped for in the current political situation with resistance from inside and outside the ruling coalition, and considering they had to re-formulate everything in a week,” said Chiara Corsa, an analyst with UniCredit in Milan.
The extent of the cuts underlines how far the government has been pushed since markets turned on Italy last month, dragging it close to a Greek-style emergency.
Market panic has eased since the ECB stepped into the market, bringing Italian bond yields back down from the 14-year highs they hit last week but wild swings on the stock market have underlined the persistent fear among investors.
Tremonti said there was no alternative to the measures if markets were to be reassured, and added that his new deficit targets were prudent.
The budget deficit will fall to 1.4 percent of gross domestic product in 2012 from 3.8 percent this year, and be eliminated in 2013, he said.
In a sign of how much pain the steps will impose on ordinary Italians, regional government leaders, who will bear a large part of the cuts, condemned the measures as unjust.
“When you talk about municipalities, you’re talking about social services, when you talk about provinces, you’re talking about schools, security at school, local roads,” said Giuseppe Castiglione, head of the Union of Italian Provinces.
Berlusconi rejected the idea of a “wealth tax” on private assets but the planned “solidarity tax” on high earners is clearly aimed at showing that sacrifices are being shared.
The package imposes a 5 percent extra tax on income above 90,000 euros and 10 percent more tax on income above 150,000 euros, as well as increasing the tax rate on financial income to 20 percent from a current level of 12.5 percent.
Little detail was offered on measures to stimulate growth but Labour Minister Maurizio Sacconi said they included moves to make it easier to strike labour deals at the company or regional level, a key element in freeing up the rigid system of centralised contracts.
The plan also aims to curb tax evasion and brings forward measures to raise the retirement age for women in the private sector, originally programmed to begin in 2020 but which will now start in 2016.
Additional measures include a rule ensuring that non-religious public holidays, such as the June 2 anniversary of the founding of the Italian Republic, are celebrated on a Sunday to increase the number of working days in a year.
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Comments (24)
Focus has moved from SB to Italy's reality
He must be vary happy to doing this job, must be a life saver for him to have focus moved away from his appearance in court to be the who saves the country from diving into a deep dark hole.
He will do everything to save Italy, and the Italians will love se him as their saver.
The man has made amazing turn around earlier but not as - SENSAZIONALE - as this one, I can put my last 5p on that.
B not M
I suspect the title of this article meant to use the word Billion rather than Million, since 45 million is insignificant in the budget of any nation and the last sentance refernces billions.
€45 million?
I am guessing €45 Billion???
Welfare
Socially unjust = pay people to sit around and contribute NOTHING to society.
Social justice is a ridiculous concept. Society owes you nothing. Get off your fat arse and do something constructive.
italy austerity cuts
Jeezuz, doesn't anyone proofread anymore. 45 million or billion?
ERROR!
read the lede and then the last sentence. someone really goofed here. but when did the ap ever worry about factual reporting?
Million?
Is this article supposed to say 'billion'?
€45 million is nothing at all.
Italy
Stand by for Riots in Italy...
Typo - million
The top of the story says they cut 45 million. I assume they meant billion which is what they reference at the bottom.
Lend them some money
$45 million, eh? Bill Gates will probably let them borrow that just to be nice. Clearly, they are off by some degrees of magnitude in the article.
That should be 25 Billion in
That should be 25 Billion in cuts if I read that correctly. 25 Million euro is the salary of a basketball star.
Millions 0r/ou billions?
Millions 0r/ou billions?
Italy
$64 million to balance the budget is all they need. I know we are a larger nation but we have to cut $1,600,000 million (that is not a typo) to balance our budget.
No wonder we were downgraded.
Deficit in the USA
It is a real shame that our leaders can not seem to CUT the SPENDING in Washington D.C. like Italy seems to have done.... They might have leaders with backbone where we seem to have spineless leaders in Washington....
(B)illions........
(B)illions........
How Much?
$65 million is nothing. That's coffee money. They need to talk billions, not millions. We are doomed. The current swath of leaders in the Western World today are nothing but a back of left wing egotists who have no clue how to manage, lead, nor get out of the way.
HuH?
Wait, you mean that $64 Million can balance the budget???!
That is NOT a problem. Heck, that doesn't even make 2 hours of budget for the U.S.
This has to be a cover up. What is their real problem?
Italy cuts Cost / America is next
As the son of early Italian immigrants, I am happy to see that Italy is facing reality & doing real cuts. We here in America need to do this soon. But our political masters use tax money to buy votes here. The next election will tell whether America also can take the tough steps needed to avoid bankruptcy or will be we end up a destroyed Socialist country without a future.
TYPO Alert..
Article uses millions and billions.. It is clearly billions, but come on AP...
Million/Billion
Come on, you guys are supposed to be the professionals. Which is it, million or billion?
Riots
The riots begin in Italy in 3....2.....1.....
65 Million LOL
65 Million
LOL
Looks like
Looks like more reality TV to appear on the news channels. Hope no one gets hurt in the riots.
Let the protests begin!
Let the protests begin!
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