The Italian Prime Minister Silvio Berlusconi announced the country’s austerity measures last Friday, in order to satisfy demands from the European Central Bank regarding action to reduce the country’s deficit.
The government held an emergency evening meeting, in which they planned spending cuts and tax increases that would save 20 billion Euros (£17.5 billion) in 2012 and an additional 25.5 billion Euros in 2013 in order to balance the country’s budget.
Incomes above 90,000 Euros could receive a special tax, in addition to higher taxes on investment income and spending cuts, including a reduction in the amount of politicians in local government.
The European Central Bank Deal
The European Central Bank had required the country to create a plan for deficit reduction as a part of the deal to purchase Italian bonds on the market after borrowing costs rose and threatened the already concerning eurozone debt levels.
The Italian Prime Minister prides himself on “never putting his hand in the pockets of Italians” and told reporters he was “personally pained” to agree to the increase in taxes. Economy Minister Giulio Tremonti agreed on the measures with Berlusconi after receiving criticism for not coming up with a clear plan.
The Italian economy is currently at a low point, and the plans have been met with slight concern about confidence. Unions had planned to oppose proposals that would affect pensioners and other ordinary Italians and it is uncertain how they will react to this news. Raj Badiani, economist at HIS Global Insight, outlined his concerns and beliefs in the plans, saying, “”The tax hikes certainly won’t help the economy, which is already stagnating, and consumer confidence is sure to fall further.
“The new fiscal measures appear to be credible, but the real problem is on the reform front. We need a timeline for measures to liberalise the service sector and labour markets.”
The plan will need to be approved by the Italian Parliament within the next 60 days. The country had kept out of the eurozone crisis until last month’s sell-off of government bonds, which resulted in the highest prices for 14 years. Due to the ECB helping the country out of the situation, panic has now lessened, but the austerity measures were necessary to eliminate fears that the country could fall into an emergency akin to that of Greece.
Measures include a 5% income tax on those who earn above 90.000 Euros and 10% extra for those above 150.000 Euros. There will be an additional increase on income tax, from 12.5% to 20%.