19th Aug 2022

Berlusconi struggles to implement austerity measures

  • Berlusconi has promised bold reforms in order to allay market fears (Photo: The Council of the European Union)

Italian leader Silvio Berlusconi has announced changes to his previously-announced austerity measures due to tensions in the governing coalition.

Under the new version of the package, the government has decided to scrap a so-called solidarity tax of 5 percent on income of more than €90,000 a year, rising to 10 percent for income above €150,000.

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Parliamentarians, whose salaries can go up to €140,000 a year, will still have to pay this tax, however. Meanwhile, constitutional changes are foreseen to halve the number of MPs - if the needed two-thirds majority can be summoned in favour of the move.

The solidarity tax move will take €2 billion out of the proposed cuts.

The government also agreed to relax planned spending cuts in regional budgets by €2 billion. But it said that the original value of the austerity package - €45 billion - will be maintained due to "reinforced tax collection."

The amendments came after a seven hour meeting in Milan between the Berlusconi camp and coalition partners Lega Nord, which have strong support at local level.

They also follow protests by mayors from all over Italy in Milan and criticism from within Berlusconi's own party, People of Freedom, which advocates low taxes.

For its part, the centre-left opposition Democratic Party criticised lack of detail on the latest changes and said the issue of stimulating growth - also major problem in Italy - had been left "completely empty."

The move is likely to trigger renewed market scrutiny about the government's handling of the crisis, after the European Central Bank (ECB) agreed to buy Italian bonds only after promises of structural reform.

A bond sale is scheduled for Tuesday and could serve as an indicator as to whether the ECB action and the austerity package are perceived to be working.

Investors' worries about Italy's ability to repay its €1.9 trillion debt and a spill-over effect from Greece pushed the 10-year bond yield to around 6.4 percent on the secondary market in early August before the ECB stepped in, pushing yields back towards the 5 percent level. The Tuesday auction is the first since the ECB move.

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