Italy government tensions rise over austerity plans

ROME Sun Jun 26, 2011 2:48pm EDT

Italy's Prime Minister Silvio Berlusconi addresses a news conference during an European Union leaders summit in Brussels June 24, 2011. REUTERS/Francois Lenoir

Italy's Prime Minister Silvio Berlusconi addresses a news conference during an European Union leaders summit in Brussels June 24, 2011.

Credit: Reuters/Francois Lenoir

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ROME (Reuters) - Tensions increased in Italy's government on Sunday over an austerity plan to be approved next week, with one senior coalition member accusing Economy Minister Giulio Tremonti of trying to cause the government's collapse.

Defense Undersecretary Guido Crosetto told news agency ANSA he was "fed up" with Tremonti's autocratic style, saying he was imposing indiscriminate cuts on every ministry but his own.

"It's clear that the economy minister just wants to find a way to upset everything and bring down the government," said Crosetto, a former economic spokesman for Prime Minister Silvio Berlusconi's People of Freedom (PDL) party.

The austerity budget aimed at eliminating the budget deficit in 2014 is due to be approved by the cabinet on Thursday, following a meeting of ruling coalition leaders on Tuesday to find political agreement over the measures.

Economy Ministry sources say the package will be worth some 43 billion euros, with deficit cuts of around 3 billion euros this year, 5 billion in 2012, 20 billion in 2013 and 15 billion in 2014.

Tensions within the center-right coalition have been running high for weeks, with some members pushing for tax cuts even as the government readies the deficit cuts that markets and ratings agencies are watching closely.

The budget is likely to be the next major test for Berlusconi, who has suffered stinging defeats in mayoral elections and popular referendums over the last month.

DEBT MOUNTAIN

Italy's budget deficit is targeted at 3.9 percent of gross domestic product this year, down from 4.6 percent in 2010.

These levels are lower than in most euro zone countries, but Italy's stock of debt -- at around 120 percent of GDP -- is second only to Greece's in the 17-member bloc.

For the 2013-2014 period, when the bulk of the savings will come, the package will include cuts of 5-6 billion euros in the budgets of central government ministries, sources say, and will reduce funding of town councils by around 3 billion euros.

A so-far unquantified amount will also be cut from financial transfers to regional governments.

Spending on the national health service, which is the responsibility of regional government, will be reduced by 4-5 billion euros.

A public sector hiring and salary freeze currently in place for the 2011-13 period will be extended to 2014, one source said.

The government also believes it can save up to 16 billion euros by reducing and simplifying tax breaks and incentives to companies and low-income families.

Only part of these savings would be used to cut the deficit, however, while the rest would help finance a broad tax reform which will include a reduction of the number of income tax rates to three from five.

Pension spending, which makes up a significant portion of public outlays, may also be curbed, sources said.

The government is considering bringing forward to 2013 from 2015 the introduction of automatic increases in the retirement age on the basis of regular assessments of life expectancy by national statistics bureau ISTAT.

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Comments (1)
billybob1 wrote:
The Italian people are smart enough to know their problems are not going to be fixed by more borrowing or austerity. I think they’ve been sold down the river by their money-hungry politicians who made side deals with the bankers, which is not an uncommon thing.

Jun 26, 2011 11:41pm EDT  --  Report as abuse
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