ROME (Reuters) - Italy’s economy minister said he did not believe additional tax hikes and spending cuts would be necessary in 2013, outlining the new government’s plans for addressing a prolonged recession in the euro zone’s third-largest economy.
Asked whether Italy would need additional correctional budget measures this year, Fabrizio Saccomanni told La7 television in an interview: “I do not believe so”.
The new coalition government led by Enrico Letta delayed a decree it was expected to pass on Thursday to suspend payments of an unpopular housing tax and finance welfare payments for laid-off workers.
“We have to avoid making hasty commitments,” said Saccomanni, a former central banker appointed two weeks ago.
A government statement said the decree would be passed in the next few days, once ministers established how to finance the freezing of the ‘IMU’ tax on residences, which will leave a budget gap of around 2 billion euros.
The decree will be the first step moving away from austerity towards more pro-growth policies to stimulate an economy that has been in recession for six quarters, something that Letta had vowed to do while sticking to EU budget limits but which he has said will be difficult to balance.
On the deficit, Saccomanni said, “the government has used all available room for manoeuvre on the deficit in 2013, and will continue to do so in 2014,” an apparent indication it could revise its target upward next year.
The government’s most recent forecasts predict a deficit of 1.8 percent of gross domestic product (GDP) in 2014. The deficit target for 2013 is 2.9 percent, just under a European Union ceiling of 3 percent.
Letta has sought to promote his pro-growth approach in visits to EU capitals since his April appointment ended a political stalemate in Italy, calling for a change in policy to address unemployment, which is high overall in the euro zone but particularly acute in Italy, Spain, Portugal and Greece.
“Italy wants to push Europe towards a strategy more focused on growth,” Saccomanni said, adding that he would tell a Monday Eurogroup meeting that Italy will stick to its deficit limits.
The IMU freeze would be funded by curbing the budgets of several government departments including the labour ministry, Saccomanni said, noting that changes to the tax would be worked out in the next 100 days, but that some form of property tax would remain.
Financing a fund to support workers who have been laid off, like the IMU property tax a touchstone political issue in Italy, will be partly financed by eliminating extra salaries collected by government ministers on top of their parliamentary wage, according to the government.
Repealing the IMU housing tax was a central election campaign platform of Silvio Berlusconi, whose centre-right bloc has veto power over the fragile new coalition.
Saccomanni played down the risk of political instability due to a Milan court ruling this week that Berlusconi should serve four years in jail for tax fraud and be barred from public office for five, a judgment that is subject to final appeal.
“I believe the indications that the events of the last few days will not have an impact on the government,” he said.
Reporting by Naomi O'Leary; Editing by Sonya Hepinstall