August 28, 2011 / 3:15 PM / 6 years ago

Italy readies austerity changes, Tremonti under fire

5 Min Read

* Negotiations on austerity changes ahead of Monday deadline

* Talk of VAT hike, smaller local govt cuts, solidarity tax

* Tremonti attacked by Berlusconi media, aides

By Gavin Jones

ROME, Aug 28 (Reuters) - Italy's ruling coalition is preparing significant changes to its austerity plan presented in mid-August and Economy Minister Giulio Tremonti, who put together the original plan, appears increasingly isolated.

The 45.5 billion euro ($65.3 million) austerity package, drawn up at the insistence of the European Central Bank, is currently being examined by the Senate, where any amendments must be presented by 1800 GMT Monday.

Ahead of this deadline, tensions have been running high in Silvio Berlusconi's centre-right coalition, with Tremonti widely blamed for what are seen as failings of the original package and also for resisting the changes that are now being proposed.

Italian newspapers report Berlusconi himself is exasperated by Tremonti's inflexibility and politicians and media close to the prime minister now regularly attack him in a way that would have been unthinkable a few months ago.

"Tremonti has to get used to the fact he's not in charge, he can't just draw up the measures he likes without consulting," Cabinet Undersecretary Daniela Santanche was quoted saying in la Repubblica on Sunday, adding Tremonti's powers should be cut.

"We don't want supermen or superministers," she said.

Santanche listed several key amendments that will be made to the austerity plan, which aims to balance the budget by 2013.

Among these, she said a plan to merge town councils with less that 1,000 inhabitants would be scrapped, as would a proposal to abolish provincial governments with less than 300,000 inhabitants.

To raise more revenue, the main value added tax rate would be increased to 21 percent from 20 percent, she said.

These changes have been urged by several government members but are said to be opposed by Tremonti. Berlusconi says whatever changes are made in the individual measures, the overall size of the deficit correction will stay the same.

Another amendment being considered is to soften the so-called "solidarity tax" on high earners, by applying it only to those who make more than 150,000 euros per year, rather than those earning 90,000 as in the original plan.

Key Meeting

However, these and other possible changes are subject to frenetic negotiation ahead of the Monday evening deadline, with a key meeting scheduled for Monday between Berlusconi and his main coalition partner, the pro-devolution Northern League.

So far the League has resisted pressure from other coalition members to raise the retirement age.

The head of Italy's main business lobby said on Saturday the austerity plan, which she already saw as inadequate, looked sure to be "clearly worsened" by the amendments under discussion.

"There is hardly anything structural and nothing for growth," Confindustria President Emma Marcegaglia said, adding it would "certainly have a depressive effect" on the economy.

Criticism of Tremonti has been building steadily, fuelling speculation he will soon resign or be pushed out of government.

He has never been popular among colleagues, who resent his wide powers and autocratic style, but until recently he was invulnerable because his tight spending curbs were considered to have shielded Italy from the euro zone debt crisis.

All that changed when Italian government bonds suddenly came under market attack this summer.

An editorial on Sunday in daily Il Giornale, owned by Berlusconi's brother and virtually a mouthpiece for the prime minister, strongly attacked Tremonti.

"If he's so good, and so far they've left things up to him, then why have we got into this situation?" it asked, while another article in the same newspaper was headlined, "Silvio and Giulio heading for the final battle".

A similar message was delivered on Saturday by Sandro Bondi, who this year quit his posts as culture minister and national co-ordinator of the ruling People of Freedom party, but who remains close to Berlusconi.

"Giulio Tremonti has become more of a problem than an asset," Bondi said. (Additional reporting by Nigel Tutt in Milan; Editing by David Holmes) ($1 = 0.696 Euros)

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