Italy braces itself for austerity cuts

Italy is set to adopt a package of budget cuts and revenue-boosting measures worth €24 billion for 2011-2012 including a possible freeze on top civil servant pay, the government said yesterday.

Prime Minister Silvio Berlusconi's Cabinet is meeting at 6 p.m. today to "examine a legal decree on urgent measures for financial stabilisation and economic competitiveness," a government statement said.

The cuts follow drastic austerity measures in Spain, Greece and Portugal aimed at stemming a loss of market confidence in indebted eurozone economies whose deficits soared during the global slump.

Mr Berlusconi's top aide Gianni Letta said they would contain "very heavy sacrifices" to protect the country from a Greek-style debt crisis.

Italy said this month it needed to add some €5 billion to €20 billion it planned to trim from 2011-12 spending, to lower its public deficit from 5.3 to 2.7 per cent of output by 2012.

As a eurozone member Italy is supposed to keep its public deficit below three per cent of gross domestic product and total accumulated debt below 60 per cent of GDP but last year that came to 115.8 per cent.

Government spokesman Paolo Bonaiuti told Italian television the measures would generate some €24 billion in savings through a combination of cuts and new revenue, but he promised the government would not raise any new taxes.

"We will not touch the pocketbooks of the Italian people," he told Canale 5, saying the savings would be found from the various Italian ministries.

The government spokesman said the thrust of the austerity measures was to slim down the state and make better use of public money, adding that a freeze on the wages of top civil servants was a possibility.

"In a period of general reduction of expenditure, it is fair that those who earn more should make a contribution," Mr Bonaiuti said.

Police officers and members of the armed forces are likely to face a freeze on pay rises, while a number of state agencies - including ones in charge of mountain areas - could face closure, Italian media reported.

Proposed new revenue streams are likely to include fighting tax evasion, raising new highway tolls, including on large city ring roads, and introducing new fees for doctors' visits, reports said.

Mr Berlusconi said on Saturday the measures would not touch essential public services such as health care, pensions, school and universities.

Mr Bonaiuti said there was no question of cutting pensions but that possible changes to the retirement age were on the cards.

The government is to hold talks with union leaders ahead of today's Cabinet meeting.