Premier Matteo Renzi's cabinet is
expected to approve some 10 billion euros in spending cuts to
avoid tax hikes when it meets Tuesday to review a new economic
blueprint, sources said.
Debate on reforms, including measures to avoid a
controversial change to the national value-added tax (VAT), is
expected to continue until Friday.
The backbone of the plan is comprised of economic forecasts
including a recent increase in expectations for growth in
Italy's gross domestic product (GDP).
Renzi recently nudged that up to a 0.7% rate of GDP growth
this year compared with the previous forecast of 0.6% growth for
2015.
As weak at that may seem, it is still a recovery from a
record of as many as 14 quarters without economic growth - since
at least mid-2011 - and GDP losses of 0.4% for 2014.
The most recent government forecasts for the national
deficit-to-GDP ratio should be confirmed at 2.6% for 2015 in the
blueprint, more formally known as the government's Economic and
Financial Document (DEF).
Meanwhile, debate is likely over measures to avoid an
increase in Italy's value-added tax.
Critics say increasing the VAT could cut as much as
0.7% off GDP by 2018.
A VAT increase from 2016 to 2018 had been proposed as a
"safeguard" against an increase in the budget deficit, but the
documents suggest the depressive effect on the economy could be
great.
The tax would weigh on consumption by the end of the period
and also slow investment in the economy, the documents warn.
Officials have suggested that instead of raising the VAT,
spending cuts of about 10 billion euros could help to keep the
budget balanced without endangering growth.
Last week, junior economy minister Enrico Morando warned
that it would be "a disaster" if the government were to raise
the VAT.
In an interview published in La Stampa newspaper, Morando
said that increasing the tax could have the effect of a landmine
exploding in the Italian economy.
Italy's basic VAT is 22%, with a lower rate of 10% for
goods including food, medicine, books, hotels, some
transportation and admission to cultural and entertainment
events.
The government's budget bill could have raised the basic
VAT to 25.5% by 2018 from the current 22% and increase the lower
10% tax level to 13% during that period.
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