August 14, 2011 / 2:16 PM / in 6 years

Factbox: Italy cabinet approves tough austerity plan

5 Min Read

ROME (Reuters) - Italy's cabinet has adopted sweeping austerity measures to cut the fiscal deficit by 45.5 billion euros and balance the budget in 2013, a year ahead of its previous schedule.

They come less than a month after parliament approved a previous austerity plan aimed at balancing the budget in 2014.

The measures, which were passed by emergency decree on August 12, must now be approved by parliament within 60 days during which they will almost certainly be amended. Discussion begins in the Senate on August 22.

Rome promised to re-write and frontload its plans in response to a letter from the European Central Bank, which agreed to buy Italian bonds to arrest a huge market sell-off in exchange for faster fiscal consolidation and economic reform.

Austerity measures will now total 20 billion euros in 2012 and 25.5 billion in 2013, Prime Minister Silvio Berlusconi said at a news conference after the cabinet meeting on Friday.

Of the 20 billion euros to be found in 2012, 4 billion will come from tax and welfare measures still to be drawn up, and the same applies to 12 billion euros of the 25.5 billion for 2013.

The budget deficit is now targeted to fall to 1.4 percent of gross domestic product in 2012 from 3.8 percent this year, and be eliminated in 2013.

Here are some of the measures in the plan as outlined by Berlusconi, Economy Minister Giulio Tremonti and other government officials.

Spending Cuts

* Cuts to the budgets of central government ministries, worth a total of 6 billion euros in 2012 and 2.5 bln in 2013.

* Funding to town councils, regions and provinces reduced by 6 bln euros in 2012 and 3.5 bln euros in 2013.

* Largely unspecified changes to the pension system to save 1 billion euros in 2012. These include a ban on people being promoted just before retirement to increase their pension.

* A progressive increase in the retirement age of women in the private sector to 65 from 60 to begin in 2016, instead of 2020 as previously planned.

* The retirement funds of public sector employees will be withheld for two years if they leave their jobs before retirement age.

* Public sector workers will lose, or get delayed payment, of the cash equivalent to one month's pay if the department they work in fails to meet savings targets.

* A reduction in the "cost of politics" resulting in a halving of elected officials and around 55,000 fewer positions in the apparatus of central and local government. However, Berlusconi did not give a timescale for these cuts.

* Lawmakers will only receive reimbursement for flights in economy class.

* All public bodies not connected with economics and finance with less than 70 employees will be abolished.

* Abolition of provincial governments with less than 300,000 inhabitants and covering less than 3,000 square kilometers, and the merging of town councils with less than 1,000 inhabitants. It is estimated this will mean the abolition of up to 29 of Italy's 110 provincial governments. However this measure will be "for the future," Berlusconi said, and not become effective for most authorities during the government's current term of office.

Higher Revenues

* A "solidarity tax" on high earners, to be levied for three years from this year, as an additional 5 percent on income above 90,000 euros per year and 10 percent on income above 150,000 euros.

* Increase in taxation of income from financial investments to 20 percent from 12.5 percent, excluding income from government bonds. However, if government bonds are not held until maturity, the interest income on them will also be taxed at 20 percent.

* Additions to a so-called "Robin Hood" tax on energy companies. The decree increases an existing 6.5 percent supplementary tax paid by energy companies by 4 percentage points, bringing the total to 10.5 percent.

It also broadens the base by reducing the cutoff level from companies with revenues of 25 million euros to include those with revenues of 10 million euros or more.

Tremonti said that if this measure raises the hoped-for revenue of 2 billion euros in 2012, then cuts to central government ministries and local authorities next year could be reduced to 5 billion euros instead of 6 billion.

* Higher taxation of lotteries and betting games and higher excise duties on tobacco, to raise 1 billion euros in 2012.

* To curb tax evasion, receipt of any payment in cash worth more than 2,500 euros must be communicated immediately to the tax authorities. There will also be tougher penalties, such as suspension from professional bodies, for failure to issue receipts and invoices.

* All non-religious public holidays, such as the June 2 anniversary of the founding of the Republic and the April 25 World War Two Liberation Day will be celebrated on a Sunday in a bid to increase the number of working days in a year.

Reforms

* A liberalization of national labor contracts giving greater scope to strike accords at the company or local level.

Editing by Mike Nesbit

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