FT: Italy to cut spending and avoid VAT rise

30 April 2012

Mario Monti's technocrat government is to cut public spending by €4.2 billion this year to keep Italy on course to meet its budget deficit targets, rather than resort to a planned increase in value added tax that would risk deepening the recession.

The government’s long-awaited presentation of its review followed intense pressure from business, politicians and the public to shift the burden of austerity away from heavy taxation towards cuts in public spending, totalling half of Italy’s economic output.

Mr Monti said the €4.2bn reduction, to begin in June, would remove the need to increase VAT by two percentage points in October in order to keep Italy on track for its budget target, set at a deficit of 1.7 per cent of GDP for 2012. Mr Monti lashed out at previous administrations, stressing that Italy’s heavy fiscal burden was due to “mistaken choices” of the past. He singled out former prime minister Silvio Berlusconi’s decision to abolish a tax on first homes, which the technocrat government decided to bring back last December when markets were pushing yields on Italian debt to unsustainable levels.

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