Italian Government Plans to Suspend Collection of Controversial Property Levy

29 April 2013 - Bloomberg

Italian Prime Minister Enrico Letta said his plans to cut taxes for homeowners, consumers and companies will keep the budget deficit within European rules.

Letta, 46, outlined his priorities in a speech in the lower house of Parliament in Rome, one day after being sworn in to replace Mario Monti. He then won a confidence vote in the Chamber of Deputies, and his government was officially installed after another vote in the Senate.

While Letta didn't give full details about financing the stimulus, he said Italy will have options once the European Union ends its budget review, known as the excessive-deficit procedure.

"We must exit from the excessive-deficit procedure to recover margins to maneuver within the European rules that we want to respect," Letta said. "Without growth and without cohesion, Italy is lost."

As Italy struggles with a second year of recession and the second-largest debt load in the euro area, after Greece, Letta is promising tax cuts to please voters and his parliamentary supporters. He's also reaching out to European allies, like German Chancellor Angela Merkel, with reassurances on budget rigor. The Italian premier travels to Berlin to meet with Merkel tomorrow and said he plans to visit Brussels and Paris.

In his 17 months in office, Monti bolstered Merkel's campaign for austerity by imposing tax increases and making deficit reduction the focus of his policies. While Letta serves at the head of the same parliamentary coalition that supported Monti, the new premier has faced more pressure to challenge EU rules and repeal austerity as Italy's recession deepens.

"In Europe and internationally, Italy will find strategies to boost growth without compromising the necessary process of restructuring of public finances," Letta said.

The new administration will seek to avoid a scheduled increase in the value-added tax and suspend collection of a controversial property levy known as IMU, Letta said. He proposed reducing payroll levies and said tax breaks to favor the hiring of young people will also be considered.

The move to lower or remove IMU reflects the influence of Letta's coalition partner, former Prime Minister Silvio Berlusconi, who placed the levy at the center of his anti-austerity election campaign. Letta will have to balance the demands for stimulus from Berlusconi, 76, and his own Democratic Party against the budget discipline required by the EU.