Berlusconi passes tax changes, ignoring parliament

ROME Thu Feb 3, 2011 5:34pm EST

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ROME (Reuters) - Italy's cabinet on Thursday approved tax reforms that had been rejected by a special parliamentary panel, sparking outrage from the opposition who accused Prime Minister Silvio Berlusconi of riding roughshod over parliament.

The decision to approve the package to raise the taxation powers of town councils underscored the growing strength of the Northern League, Berlusconi's main coalition partner which had threatened to withdraw its support if the measures were blocked.

Pierluigi Bersani, leader of the largest opposition Democratic party, said it was "an unbearable slap in the face to parliament," while the centrist UDC called it "a vulgar and arrogant step which is totally illegal under the constitution."

The eagerly awaited vote of the 30-member parliamentary panel resulted in a 15-15 tie, dealing a setback to Berlusconi.

The vote of the committee on federalism, made up of lawmakers from both houses of parliament, was not formally binding, but it was widely considered that the center-right government would have to take its verdict into account.

But after a hastily convened evening cabinet meeting, Northern League leader Umberto Bossi announced in a brief statement that the tax measures had been "definitively passed."

"The League keeps its promises and brings home a concrete result in the interests of the people," he said.

Bossi, who has the power to bring down the government, has promised his supporters a deal on the package aimed at increasing local autonomy and cutting subsidies from the prosperous north to the poorer south.

Ahead of the panel ruling, he said new elections would be needed if the measures were not approved, but the party's leadership has been divided over what approach to take and he appeared to backtrack later.

Following a second vote on Thursday, when deputies rejected a search request by magistrates investigating allegations against Berlusconi of having sex with an underage prostitute, Bossi put off any suggestion of early elections. "The numbers are good, for now we'll carry on," he told reporters.

SCANDAL

Ever since Berlusconi's former ally Gianfranco Fini split from the ruling PDL party in July, the League has held the fate of the government in its hands and its importance has only risen after the sex scandal that has engulfed the 74-year-old premier.

Berlusconi has resisted calls to resign over the scandal that has made a household name of "Ruby," the teenage nightclub dancer he is alleged to have paid for sex while she was under 18, the earliest legal age for prostitution in Italy.

He denies the accusations and received some backing on Thursday, when the lower house voted against letting magistrates search his accountant's offices, a result which helped swing Bossi against a move for early elections.

Berlusconi already faces two trials over tax fraud allegations in coming weeks in addition to the prostitution scandal, which prosecutors are also seeking to bring to court.

His accountant, Giuseppe Spinelli, is suspected of handling payments to the varied cast of young women whom prosecutors say received bundles of cash and jewelry and, in some cases, free housing from the billionaire media entrepreneur.

The affair has largely prevented Berlusconi winning back control of the political agenda since he scraped through a no-confidence vote on December 14.

The tax package, which includes a new tax on second homes, new rules on rental income and a tourist tax on hotel bills, has been revised numerous times and much of its impact would not be felt for several years.

(Additional reporting by Paolo Biondi; Writing by Gavin Jones and James Mackenzie; Editing by Jon Hemming)

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