Italy's Renzi rules out corrective budget, pension cuts

ROME Thu Aug 21, 2014 3:20pm EDT

Italy's Prime Minister Matteo Renzi meets with Iraq's Prime Minister-designate Haider al-Abadi in Baghdad August 20, 2014. REUTERS/Mahmoud Raouf Mahmoud

Italy's Prime Minister Matteo Renzi meets with Iraq's Prime Minister-designate Haider al-Abadi in Baghdad August 20, 2014.

Credit: Reuters/Mahmoud Raouf Mahmoud

ROME (Reuters) - Italian Prime Minister Matteo Renzi denied on Thursday that his government planned to raise taxes, cut pensions or adopt corrective measures to rein in the budget deficit this year.

There have been repeated media reports this summer that the government will need to pass a mini-budget to hold the deficit inside European Union limits after the economy unexpectedly slipped back into recession.

"Anyone talking about pension cuts or mini-budgets is talking about things that are not on the agenda," Renzi said in an interview with the private television station Canale 5.

Labour Minister Giuliano Poletti said last week that under certain conditions he was in favor of reducing particularly high pensions or pensions that were disproportionate to the contributions that pensioners had paid into the system.

Italy's public spending on pensions is the highest in the European Union as a proportion of economic output.

"Will there be new taxes when people return from their holidays? No, on the contrary we will try to continue to cut taxes," Renzi said. He added that to do this it would also be necessary to "give a trim to public spending," without offering further details.

The euro zone's third-largest economy shrank by 0.2 percent in the second quarter, the 11th contraction in the last 12 quarters, tipping it into recession.

Most economists now expect Italy to post little or no growth this year compared with an official government forecast for a 0.8 percent expansion, and the weaker economic activity is seen taking a toll on public finances.

Renzi has said he will not let the fiscal gap exceed the EU's 3 percent of gross domestic product limit even though the current 2.6 percent target for this year is likely to be missed.

(Reporting By Gavin Jones; Editing by Susan Fenton)

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