February 24, 2014 / 10:47 AM / 4 years ago

UPDATE 2-Italy may hike tax on government bonds

* Italy may raise tax on bond coupons to 20 pct from 12.5

* Tax on capital gains below EU average -PM’s chief of staff

* Higher bonds tax could yield 400 mln euros in revenue

* Italy’s DMO head calls for caution on tax increase (Recasts, adds comments by Renzi, Italy’s DMO head, Reuters calculation on revenue)

By Lisa Jucca

MILAN, Feb 24 (Reuters) - Italy may increase taxes on coupons pocketed by Italian savers on government debt, new Prime Minister Matteo Renzi’s chief of staff Graziano Delrio said in a television interview.

Renzi confirmed on Monday his government would consider raising taxes on gains from financial investments as a way of funding a labour reform package, but gave no details.

“Taxing (financial) earnings to get money for the labour reform is an issue that will be studied,” Renzi told reporters in the Senate, where a confidence vote on his new government is to be held later in the day.

Coupons on Italy’s huge stock of government bonds and bills - popular with domestic savers and foreign financial investors - are currently taxed at 12.5 percent.

The rate could be increased to the 20 percent capital gains tax Italy levies on other financial instruments, according to Italian newspaper La Stampa.

That would hit only Italian retail investors and would bring in around 400 million euros for Italy’s state coffers, according to Reuters calculations based on an average coupon of 2.83 percent on outstanding government bonds.

“We will consider whether we should rework the taxes on capital gains from financial investments, which at the moment are not in line with the European average of 25 percent,” Delrio told the Italian television programme ‘In Mezz‘Ora’ on Sunday.

Delrio specifically raised the prospect of raising the tax on BOTs - a term that refers to government T-bills but is often used as shorthand for government debt in general.

While details on the new government strategy are sketchy, Italy’s head of Debt Management Office suggested caution on the idea of hitting savers who invest in the country’s debt.

“The impact on revenue could be small, but I don’t know about the effect on demand,” Maria Cannata said at a business conference in Rome. “A bit of caution would not be a bad thing.”

She said, however, she was not at all concerned about this week’s debt auctions.

Starting on Tuesday, the Treasury will tap the market for three days in a row, a first test of investor sentiment towards a potential hike in tax.

Renzi has said he will address the high taxes and high labour costs that have stifled the competitive edge of a country slowly emerging from its longest recession in 60 years.

In 2014 as whole, the Treasury is expected to sell around 470 billion euros of new bonds and bills, approximately the same amount as last year.

Italy-based investors, excluding banks and other financial institutions, held 183 billion euros in Italian bonds in November, central bank data showed this month - some 10 percent of the 1.755 trillion euros outstanding in bonds and bills. (Additional reporting by Stefano Bernabei, Giuseppe Fonte, Alberto Sisto in Rome; writing by Francesca Landini; Editing by John Stonestreet and Alistair Lyon)

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