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Govt cuts income tax, but VAT set to rise

Unions give mixed reaction, PD says budget needs 'fixing'

11 October, 10:16
Govt cuts income tax, but VAT set to rise

(ANSA) - Rome, October 10 - Premier Mario Monti said early on Wednesday that his government will cut income tax in the two lowest bands next year after a tense Cabinet meeting on budget measures that ran late into the night.

But he added that a 2% increase in value added tax scheduled for July 2013 that the government had hoped to avoid will be halved to 1% rather than scrapped completely. So vat will go up from 10% to 11% in the lower band and 21 to 22% in the top band. Monti stressed that the budget measures, contained in the so-called Stability Law, did not amount to another austerity package like the tax hikes and spending cuts his emergency government passed last year to put Italy on course to balancing its budget in structural terms next year.

But they still featured new cuts, including a reduction of over one billion euros In health spending that reportedly caused Health Minister Renato Balduzzi to threaten to resign at the cabinet meeting.

Balduzzi denied that the meeting had been bad-tempered, but said he would continue to lobby for the cuts to be reviewed as the bill goes through parliament.

"I will continue to present the reasons why plans should be reconsidered," the minister said.

Monti, on the other hand, expressed satisfaction at the income-tax cuts, which will primarily benefit lower earners, saying they showed the policies of his administration of non-political technocrats were working.

"Today we can see and feel that budget discipline pays and it is beneficial," Monti told a press conference.

"We can allow some moderate relief (with moves such as) as start in the reduction of income tax". The income-tax rate will be cut to 22% from 23% for those earning less than 15,000 euros per year, and to 26% from 27% for salaries between 15,001 and 28,000 euros, while the top three bands will remain unchanged.

Monti's austerity measures helped stop Italy following Greece on the path towards a default on its massive national debt but they also have deepened the recession the country slipped into last year.

Italy's trade unions gave a mixed reaction to the government's budget bill. "It's a budget that will depress the economy," said Susanna Camusso, the head of Italy's largest union confederation, the left-wing CGIL. "The news is that there will be an increase in VAT, an increase that will only be partially compensated by the cut in income tax". She added that people on benefits will see their cost of living rise. However, Raffaele Bonanni of the more moderate CISL praised the measures. "It's a very important signal because for the first time in many years the income tax of low earners is being lightened a little," said Bonanni. The centre-left Democratic Party (PD), which is one of the three main political groups supporting Monti's emergency government and is top of the polls ahead of next year's elections, said health and education cuts needed to be amended. "The reduction of the lowest bands of income tax is very good, but I think there are things to fix regarding two points," said PD chief Pier Luigi Bersani. "It's necessary to have a very precise look at the effects of the health cuts and I fear that the jobs of 6,300 to 6,400 teachers will be cut in schools". Industry Minister Corrado Passera said the budget bill was "a good starting platform" for parliament to work on.