UPDATE 2-Italy business group critical of govt austerity

Thu Sep 1, 2011 6:24pm EDT

* Confindustria- austerity package "weak and inadequate"

* Group raises concern for how govt is handling situation

* Berlusconi says VAT hike is a possibility

(Adds Berlusconi comments)

By Giulio Piovaccari and Catherine Hornby

MILAN, Sept 1 (Reuters) - Italian employers' group Confindustria slammed the government's austerity plan as "weak and inadequate" on Thursday and expressed concern about how Italy's economic problems are being handled.

The group said that, despite recent amendments, the 45.5 billion euro ($65.29 billion) austerity package, approved by Silvio Berlusconi's government last month, lacked clarity and did not contain structural measures to boost growth.

"The package that is being laboriously shaped seems weak and inadequate", the powerful business lobby said in a statement.

It expressed "strong concern for how the serious situation of Italy's public finances and the economic recovery is being dealt with".

The austerity package, a mix of spending cuts and tax hikes aimed at balancing the budget in 2013, was drawn up hastily last month to reassure panicked markets over the solidity of public finances in the euro zone's third largest economy.

But it has been widely criticised since, and has been changed repeatedly as Berlusconi rows back on measures in the face of protests, at times just days after they have been announced.

The chairman of the association of Italian municipalities, Osvaldo Napoli, described the situation as "disastrous" on Thursday, and said mayors would continue their protest.

The government has already scrapped a proposed "solidarity tax" on high earners and reduced planned cuts to local authority funding. It has also backtracked on measures that would have delayed retirement for many university graduates.

Berlusconi told reporters late on Thursday that he had reassured European Union leaders that Italy would achieve its 2013 target to balance the budget.

He described opposition parties, which have fiercely criticised the plan and proposed their own alternatives, as "criminals" and "anti-Italian" and said they were fuelling market concern about Italy.

Economy Minister Giulio Tremonti repeated on Thursday that the overall size of the deficit cuts would remain the same in the revised package.

But the changes have left a funding shortfall estimated at anywhere between 4 and 6 billion euros. A lack of detail has made it difficult for analysts to judge whether the measures will be enough to achieve the required deficit cuts.

Berlusconi told Il Tempo daily on Thursday that the government could increase value-added tax by one percentage point to 21 percent if needed to fill the shortfall.

He also said later that VAT could be raised to 22 percent for three months, if necessary.

Confindustria said the government's changing plan "underlines the risks that inadequate management of these problems can have for Italy and all of Europe".

Wrangling over the package has caused tension in Berlusconi's government, and more changes are likely before the amended version is passed in parliament later this month.

($1=.6969 Euro)