ROME (MNI) – Italy’s Prime Minister Mario Monti, appointed last
month to salvage Europe’s third-largest economy, unveiled on Sunday
evening a E30 billion package of spending cuts and tax increases
intended to regain the country’s credibility in financial markets and
ensure that Rome’s borrowing costs don’t push it towards bankruptcy.
“This is a package of measures aimed at saving Italy,” Monti told
journalists at a press conference after his cabinet signed off on the
measures. “In the past, political decisions were made on the basis of
short-term effects, in view of the next elections. They were not taken
with the good of our children and grandchildren in mind.”
The measures proposed by Monti’s government include E13 billion of
spending cuts and E17 billion in new tax revenue. The spending cuts
include reductions in pension outlays and a streamlining of expenditures
related to the operations of regional and other local governmental
bodies. The new revenue is expected to come from the re-introduction of
a tax on primary residences, a stamp duty on all financial transactions,
and a luxury tax on large boats, top-end automobiles and private
airplanes.
In addition, Italians who benefited from a recent tax amnesty for
repatriated capital would be taxed 1.5% under the proposed measures.
Moreover, should the measures fail to achieve savings above and beyond
the previous government’s targets — E4 billion euro in 2012, E12
billion euro in 2013, and E4 billion euro in 2014 — the value added tax
would be hiked to 23% from the current 21% in the second half of 2012.
Monti said he would lead by example and forego his remuneration as
prime minister and as interim finance minister. Italian labour minister
Elsa Fornero burst into tears while talking about the “sacrifices”
involved in the pension reform the government is introducing.
The pension system reform includes measures that will delay
retirement and switch to a fairer “contributive” system that reflects
the actual funds paid into the system by workers. The previous system
“benefited the richest workers,” Fornero said.
The nation’s financial markets have suffered for weeks under
pressure from international investors concerned about the massive
Italian debt and ex-Prime Minister Silvio Berlusconi’s inability to
present acceptable solutions. In recent weeks, Italy’s cost of borrowing
for 10 years exceeded 7%, the level at which Greece, Ireland and
Portugal were forced to seek EU bailouts. At one point late last month,
borrowing costs on 2-year money hit 8%.
Monti faces the difficult task of safeguarding his country from
default, an event that many fear could unleash a major meltdown in the
17-member Eurozone since Italy is considered to large to bail out. Monti
was sworn in on Nov. 16 after his predecessor, Silvio Berlusconi,
resigned under intense pressure from financial markets after dominating
the Italian political scene for 16 years.
Monti said his government also plans to crack down on tax evasion
to ensure that more people contribute to Italy’s fiscal base.
Unidentified cash payments will be capped at E1,000, leading to an
increase in electronic payments that will permit more transparency. The
prime minister also excluded a “tax amnesty,” previously touted by
Berlusconi.
“In terms of stamp duty, we will be extending this to stock market
investments and also other financial instruments, and this should be
done on an EU-level,” Monti urged. “France and Germany are favorable to
this, and we are changing Italy’s previous position to a more favourable
one.”
Italian Economic Development Minister Corrado Passera said the
measures were also aimed at boosting economic growth by increasing
employment, boosting individual company competitiveness, opening markets
to more competition, and developing Italy’s infrastructure.
By some estimates, Italy is suffering from a E200-300 billion
infrastructure deficit, the Passera said. The government also wants to
form a credit pool of some E20 billion that small and medium-sized
Italian companies could tap into should they encounter difficulty
obtaining bank loans, he said.
Monti will present his government’s plan on Monday to both the
upper and lower houses of parliament.
[TOPICS: M$I$$$,M$X$$$,M$$CR$,MT$$$$,MGX$$$]
