March 9, 2014 / 10:37 PM / 4 years ago

Italy's Renzi says tax cuts will not imperil EU limits

ROME (Reuters) - An ambitious Italian plan for tax cuts to be announced this week will respect European Union deficit limits, Prime Minister Matteo Renzi said on Sunday.

Before replacing Enrico Letta as the head of government last month, Renzi had said an EU rule that member states should not run deficits of over 3 percent of gross domestic product ceiling should be renegotiated.

However, he told a Sunday television talk show that the limit was “a conceptually antiquated idea, but we will respect it as long as it is not changed”.

Hoping to spur growth in the euro zone’s third largest economy as it struggles to keep out of recession amid record unemployment, Renzi has vowed to cut 10 billion euros ($13.86 billion) from the tax wedge, the difference between what an employer pays and what a worker takes home.

He dismissed accusations of a split in the government on whether the cut should apply to income tax or regional business tax, and said the plan would be announced on Wednesday, although without giving details of what it would contain.

“The true way of reducing costs for business is not just by cutting taxes, which we will try to do, but by simplifying the rules of the game,” Renzi said.

He said the reform would not be targeted to benefit any specific interest groups, after Italy’s largest union, the CGIL, warned it was ready to mobilize if tax cuts were not focused on workers.

ELECTORAL REFORM

The inexperienced 39-year old mayor of Florence and leader of the centre-left Democratic Party is under pressure to balance attempts to stimulate the economy with the need to control spending in the country with the biggest debt in the euro zone after Greece.

Last week the European Commission put Italy on its ‘watch list’ due to its high debt and weak competitiveness, meaning it will closely monitor reforms and could impose fines if they are not implemented.

The new prime minister’s ability to realize his program depends on the same fickle majority in parliament that hampered his predecessor Letta, and he also faces enemies within his own party.

Renzi admitted disagreement in parliament had stalled an electoral reform he had planned to institute by February, the first of a series of major overhauls he had vowed to pass at the rate of one a month.

But he said debate on amendments to the law, which aims to ensure clear winners to elections and more stable governments, would be concluded by Tuesday.

Initially intended to apply to both the lower and upper houses, the law may only apply to the chamber of deputies, but Renzi has said the Senate will be abolished in its current form anyway. Senators would themselves have to approve such a change for it to become law.

Additional measures he promised on Sunday were to simplify Italy’s notoriously complex tax system, invest 10 billion euros in the school system, and introduce a welfare system under which laid-off workers can collect a stipend if they attend re-training courses. ($1 = 0.7214 euros)

Reporting by Naomi O'Leary; Editing by Mark Trevelyan

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