Italian Prime Minister Matteo Renzi yesterday presented a sweeping package of tax cuts, saying they could help economic recovery without breaking EU budget deficit limits.
Renzi, in his first full news conference since taking office last month, said income tax would be reduced by a total €10 billion annually for 10 million low and middle income workers from May 1.
The 39-year-old former mayor of Florence said his agenda to stimulate the economy was the most ambitious Italy had ever seen as he reeled off measures he insisted were fully funded.
“This is one of the biggest fiscal reforms we can imagine,” he told reporters after a Cabinet meeting that approved the measures.
Italy is struggling to emerge from its longest post-war recession and Renzi has made clear that job creation and growth, rather than austerity, will be the focus of his government.
He said the detail of the tax cuts would be set out in the government’s annual forecasting document released next month and made clear the budget deficit goal would be raised while remaining below the EU’s ceiling of three per cent of output.
Italy is currently targeting a deficit of 2.5 per cent of GDP this year after three per cent in 2013. The tax cuts will be financed by reductions in central government spending, by extra borrowing and by resources freed up thanks to the recent fall in Italy’s borrowing costs, he said.
“We will respect our European commitments,” Renzi said, adding that he expected EU authorities would take note of Italy’s reform efforts in judging its public finances.
This month the European Union put Italy on a watch list of just three countries with severe macro-economic imbalances, along with Slovenia and Croatia, due to its weak productivity and massive debt.
As well as the income tax cuts, Renzi said the regional Irap business tax would be reduced by 10 per cent, to be financed by an increase in taxation of income from financial instruments to 26 per cent from 20 per cent, with the exclusion of government bonds, which are popular with Italian savers.