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Italy, Spain PMs bet on tax cuts

Thursday, March 13, 2014 - 02:28

Mar 13 - Italy's new premier, Matteo Renzi, has presented an 'ambitious' package of tax cuts - as has his counterpart in Spain, Mariano Rajoy. As David Pollard reports, the political fortunes of the two leaders could rest on the new proposals.

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Economists call it 'fiscal devaluation' - it could be the gamble of a career for two European leaders. Both the Spanish and Italian prime ministers want to introduce a policy of sweeping tax cuts in order to boost growth. The potential win: thousands of news jobs and economies which can compete. Phil Tyson of ICAP. (SOUNDBITE) (English) PHILIP TYSON, HEAD OF STRATEGY FOR INTEREST RATE PRODUCTS, ICAP, SAYING: ''To really ensure that there's some sort of marked pick-up in growth, to really start eating into those high unemployment levels that we see in Italy and particularly in Spain, and the debt levels, we need to start seeing some structural changes. So I think that, you know, the moves we're seeing in both Spain and Italy on this front are the right ones to be making right now.'' But at stake: the credibility of new Italian premier, Matteo Renzi. He says the measures - which the cabinet have approved - are part of the most ambitious reform programme Italy has ever seen. Income tax would be slashed by ten billion euros annually for low- and middle-income workers. Regional business tax trimmed ten per cent. And seventy billion euros of state debt to private sector suppliers paid off. All to be financed by curbs in government spending - and extra borrowing. And that's caught the eye of critics, who say Italy's public debt - after Greece, the second biggest in the euro zone at 133 per cent of GDP - is big enough. The European Commission has already warned that Italy's new plan must respect EU budget rules. While others, like Craig Erlam of Alpari, point a finger at Italy's fractious political system. (SOUNDBITE) (English) MARKET ANALYST AT ALPARI, CRAIG ERLAM, SAYING: ''No matter how hard these new prime ministers try, and these young and really, really enthusiastic prime ministers try, it just doesn't seem to matter. Things just don't seem to be able to pass very easily, and that's really acting against Italy's growth prospects going forward.'' Spain's Mariano Rajoy, meanwhile, has seen support for his People's Party plummet over the last two years. A recent poll showed three quarters of Spaniards disapproved of his austerity policies. But with a quarter of the workforce unemployed, Rajoy wants to slash corporate tax and income tax for lower earners, and to reduce worker contributions for insurance and pensions - betting it will all help trigger consumer spending and corporate hiring. The snag: voters may well baulk at a sharp hike in value added tax Rajoy needs to pay for the cuts. And that could add to the disenchantment as he gets closer to the end of his term next year.

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Italy, Spain PMs bet on tax cuts

Thursday, March 13, 2014 - 02:28