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Government to cut income tax, raise VAT

'Discipline pays' says Premier Monti after presenting budget

10 October, 11:30
Government to cut income tax, raise VAT (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 (IVA) scheduled for July 2013 that the government had hoped to avoid will be halved to 1% rather than scrapped completely. So IVA will go up from 10% to 11% in the lower band and 21 to 22% in the top band. Monti's 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 on health spending, that reportedly caused Health Minister Renato Balduzzi to threaten to resign at the cabinet meeting.

Nevertheless, Monti 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.