Brussels, 05/12/2011 (Agence Europe) - On Monday 5 December, EU Economic and Monetary Affairs Commissioner Olli Rhen said that the Italian government's adoption of an extra round of tax and other measures, announced by Italian Prime Minister Mario Monti at the 30 November ECOFIN Council in Brussels (see EUROPE 10506), was a very important stage in the consolidation of public finances and the encouragement of economic growth while preserving social fairness and justice in measures relating to taxation, pensions, reform of the civil service, liberalisation and encouraging entrepreneurship. The commissioner said the new measures would help Italy meet its target of a balanced budget in 2013 and reining in debt while restoring credibility in the eyes of partner countries and the markets.
The new austerity plan will cut public spending in 2012-2014 by some €20 billion (1.3% of GDP) while spending more than €10bn to encourage growth and jobs. It comes on top of €60 billion-worth of austerity measures decided upon in July and September this year by the previous government. The new measures cover:
- Taxation. The main measures: - a 60% extension in the tax basis for property tax; reintroducing a 0.4% tax on the value of the first home and and a 0.7% increase in the tax on second homes; a 2% rise in the 10% and 21% VAT rates; the tax on income of €70,000 or more a year will rise from 43% to 46%; increases in taxes on luxury goods (cars, yachts, private aircraft) and petrol duty (up 1 eurocent a litre); tackling tax evasion by means of tighter controls on cash payments (introducing a maximum limit of €1,000 per payment). These measures are expected to net between €10bn and €12bn.
- Pensions: - Pensions will now be based on the full working life rather than the final salary; - next year, the retirement age will rise to 66 for men and 62 for women (66 for women from 2018), with the self-employed having to work for 6 months longer than the employed; - social security contributions over 42 years and 1 month will now be required for men to ensure entitlement to a pension, and 41 years and 1 month for women, with a 3% penalty per year for early retirement. In 2012, only pensions of €960 or less will be increased in line with inflation. Pension contributions by farm workers and the self-employed are being increased.
- Economy: - Savings of €5 billion will be made in central government spending on regions, provinces and local communities, along with cuts of €2.5bn in public spending on healthcare and social security by simplifying and concentrating administrative bodies and reducing staff numbers; the staff of the national competition authority and stock market inspection authority will be reduced; the pay of ministers and secretaries of state will be cut.
- Enterprise and development: - Aid towards company capital and a new small business loan guarantee fund; some of the regional IRAP tax on labour may be deducted from the IRPEF company tax; the state may guarantee Italian bank assets for between three months and five years; relaxing the restrictions on pharmacies and other protected areas of the economy.
The austerity plan will be painful - so painful, in fact, that it reduced the labour minister, Elsa Fornero, to tears when it was unveiled. But as Mario Monti said, the country is at a crucial crossroads - either it introduces austerity measures today or the Italian state goes bankrupt tomorrow, with the danger of being accused of the heinous crime of destroying the euro. (FG/transl.fl)