The Italian government will implement a financial package worth €45 billion over the next two years in spending cuts and higher taxes.
The measures, passed after an emergency cabinet meeting on Friday, comes after the European Central Bank requested the country to bridge its deficit gap by 2013.
The latest round of budget deficit bridging exercise comes after the Italian cabinet approved similar measures in mid-July amounting to €47.8 billion. The latest move includes €20 billion in deficit cuts in 2012 and another €25.5 billion in 2013.
“We have no alternative to this model,” said Giulio Tremonti, Italy’s finance minister.
“The decree goes in the direction that the ECB had wished for,” said prime minister Silvio Berlusconi.
Announcing the deal, Mr. Berlusconi said his centre-right government was “open to improvements suggested by the opposition parties during the discussion in parliament.”
The latest round of tax hikes and spending cuts will reduce the country’s deficit to 3.9 per cent in 2011 and to 1.4 per cent in 2012, paving the way for a balanced budget in 2013, instead of 2014 as previously planned.
The Bank of Italy said the country’s public debt hit a new record of €1,900 billion, partly due to the country’s contribution towards the EU’s emergency rescue package to Portugal.
Though the details were not immediately available, sources said the new measure includes a “solidarity contribution” from the rich, reform of the state pension system and budget cuts to ministries and local authorities.
The plan outlines merging 1,500 municipalities out of the total 8,000 and abolishing a third or thirty-six provinces. The deal proposes to cut local government funding by €9.5 billion.
Mr. Tremonti said women’s pension age will be increased as part of the pensions reform process, without divulging further details. The decree needs to be passed into law by the parliament within 60 days, according to the country’s constitution.