April 18, 2014 / 11:21 AM / 6 years ago

Italy government prepares to approve tax cuts

ROME (Reuters) - Italy is due to get the income tax cuts promised by Prime Minister Matteo Renzi as a way to boost stagnant domestic demand.

Italian Prime Minister Matteo Renzi gestures during a meeting in Turin, April 12, 2014. REUTERS/Giorgio Perottino

Renzi’s cabinet is meeting on Friday to agree the details of roughly 7 billion euros (5.76 billion pounds) of tax cuts. The prime minister said last month the cuts would increase the pay of low-income workers by around 80 euros per month, starting in May.

However, when he announced the tax cuts, in his first full news conference after taking office, he did not present the legislation needed to enact and fund them. The cabinet will meet at 3:30 p.m. (0230 pm BST) to pass the decree “for competitiveness and social justice”, which Renzi is due to present at a news conference at around 4:30 p.m.

Renzi, a slick television performer who is campaigning hard ahead of elections for the European Parliament next month, is likely to focus more on the tax cuts than on the spending reductions needed to finance them.

The prime minister, a 39-year-old former mayor of Florence who gained power in February by replacing a party rival, needs a strong showing in the election to shore up his political credibility and legitimise his hold on the government.

“We’re giving 80 euros a month to six and a half million people, while 2.8 million people will get between 60 and 80 euros,” Renzi said in an online interview with La Stampa newspaper.


Health Minister Beatrice Lorenzin said on Friday she would “fight” in the Cabinet meeting to defend the health budget, which is expected to be cut by around 1 billion euros.

The promised 80 euros per month is expected to be the maximum benefit for those workers who earn a gross salary of 18,000 to 23,500 euros per month. Those on lower incomes will benefit by less. So will those earning 23,500 to 28,000 euros. No cut is expected for those who earn more than 28,000 euros.

Economy Minister Pier Carlo Padoan has estimated the tax cuts can raise Italy’s economic growth this year by around 0.3 percentage points.

It is not clear if this boost is already incorporated in the government’s official forecast of 0.8 percent growth this year, which it reduced from 1.1 percent last week.

Renzi, leader of the centre-left Democratic Party, also promised to lower the regional business tax by 10 percent and curb energy costs for companies. But he is under pressure from Brussels to keep a lid on Italy’s strained public finances.

The tax cuts, which the government says will be permanent, will reduce government revenues by 6.5 billion to 7 billion euros this year, rising to 10 billion euros per year thereafter.

Renzi has promised they will be largely funded by cuts to public spending, though he also plans to raise taxation on financial instruments, except for government bonds, to 26 percent from 20 percent. A one-off windfall from taxes on private banks’ revalued shares in the Bank of Italy will also improve revenues.

Last week, the government slightly raised its target for this year’s budget deficit to 2.6 percent of output from 2.5 percent and hiked the target for the public debt, the second highest in the euro zone after Greece’s, to record high of 134.9 percent from 132.8 percent.

($1 = 0.7228 Euros)

Reporting By Gavin Jones; Editing by Larry King

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