July 8, 2019 / 3:32 PM / 8 days ago

Italy's Tria signals open to sales tax hike as EU cheers end of sanction threat

BRUSSELS (Reuters) - Italy’s Finance Minister Giovanni Tria on Monday signaled he was open to sales tax hikes next year to favor growth and reduce levies on labor, in a further conciliatory gesture to Europe that could however cause him trouble at home.

European Economic and Financial Affairs Commissioner Pierre Moscovici listens to Italian Economy Minister Giovanni Tria during a eurozone finance ministers meeting in Brussels, Belgium July 8, 2019. REUTERS/Francois Lenoir

Italy last week averted an EU disciplinary procedure over its large debt — the second time in six months it has managed to dodge such censure — by offering an improvement of public finances this year and commitments for the next.

The EU Commission, responsible for monitoring EU states’ fiscal policies, said last week it would continue to closely watch Italy’s plans for 2020 when the country’s deficit could rise considerably if a planned rise of sales taxes is aborted.

The two parties that back the eurosceptic administration, the anti-establishment 5-Star and far-right League, have repeatedly ruled out such a hike, but Tria suggested he was open to that form of tax rise on Monday on the sidelines of a meeting of euro zone finance ministers.

“I believe taxation should be rebalanced by lowering direct levies in favor of indirect taxes,” he said, adding that this would benefit growth as it would reduce labor costs.

But, in a sign of how sensitive the issue is in Italy, Tria declined to answer a specific question on how the sales taxes rise should be performed.

EU RELIEVED

The bloc’s top officials on Monday welcomed Italy’s budget efforts, with the head of the Eurogroup of euro zone finance ministers Mario Centeno saying it was “good news” that the procedure was averted.

To persuade Brussels to stop the procedure, that could have led to sanctions, Rome offered a structural improvement of 0.45% of its output this year, mostly due to lower-than-expected expenses.

Brussels looks at the structural figures because they do not include one-off revenues and contribute to lowering the debt burden, which in Italy is the second-highest in the EU after Greece in proportion to output.

French Finance Minister Bruno Le Maire said the Commission’s decision to halt the debt action against Rome was a good choice, while Dutch Finance Minister Wopke Hoekstra, one of the staunchest critics of what he sees as the EU’s lenient approach on fiscal rules, avoided critical comments.

Ministers insisted however that Italy should respect its commitments for next year and should clarify its plans at Monday’s meeting.

Tria said Rome wanted to continue efforts to structurally improve its public finances in 2020.

Reporting by Francesco Guarascio @fraguarascio, Editing by Gabriela Baczynska, William Maclean

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