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13 December 2011

Bloomberg: Monti says changes to austerity plan will boost fairness


Italian Prime Minister, Mario Monti, said an agreement to ease pension cuts and a new property tax will make his emergency budget plan fairer, and its passage will convince investors that Italy can slash the euro region's second-biggest debt.

“We are confident that markets will react positively to the efforts Italy is making, maybe not tomorrow, but the reduction in borrowing costs that we anticipate in the coming months will help spur the economy”, Monti told a parliamentary committee in Rome.

The premier praised input from lawmakers that led to the amendments proposed by his government yesterday. The plan will be changed to raise the threshold on pensions that will be stripped of cost-of-living increases to about €1,400 a month in 2012, from less than the €1,000 in the original package. The minimum pension is about €500. Families paying the new property tax will get a €50 credit per child, the amendment says. Italians whose checking accounts average less than €5,000 a year will no longer have to pay a €34 annual tax.

The government will cover the lost revenue by increasing the planned levy on Italians who took advantage of previous amnesties on tax evasion. The amendment will also add a tax surcharge on pensions of more than €200,000 a year and will impose a levy on property owned by Italians outside Italy.

Monti acknowledged that the tax increases and spending cuts in the plan may hurt economic growth in the short run. “The alternative was a deepening of the sovereign debt crisis that wouldn’t have just led to a recession but the destruction of wealth and the evaporation of the income of Italians”, Monti told the budget committee in the Chamber of Deputies. The premier defended the plan from criticism that salaried workers and pensioners, rather than the wealthy, will bear most of the burden from the austerity measures. His government had considered implementing a wealth tax, but determined that it wouldn’t have generated enough revenue in the short term and would have led to capital flight from Italy, he said.

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