Italian Government Approves Austerity Cuts


PRESS ASSOCIATION -- Italy's government has approved 45 billion euro (£39.3 billion) in cuts over the next two years to balance the budget by 2013 to meet demands of European Central Bank.

The Cabinet approved the measures on Friday evening despite fierce resistance from local government officials who denounced the emergency austerity measures as socially unjust.

Premier Silvio Berlusconi told a news conference that the the measures respond to requests from the ECB, which demanded a balanced budget a year earlier than anticipated as well as structural reforms to promote growth.

The cabinet approved 20 billion euro (£17.5 billion) in cuts for 2012 and 25 billion euro (£21.8 billion) for 2013.

Mr Berlusconi said: "It wasn't easy. We're personally pained to have taken these measures, but we are satisfied." He spoke to reporters after feverish talks with the opposition, regional governors and big city mayors.

The measures include an extraordinary "solidarity" tax for high-earners. Anyone with an income over 90,000 euro (£78,800) a year will be assessed an additional 5% tax in each of the next two years. The rate will be 10% for incomes over 150,000 euro (£131,300).

"Our hearts are bleeding. This government had bragged that it never put its hands in the pockets of Italians but the world situation changed," Mr Berlusconi said, while insisting the emergency measures were "fair".

The solidarity tax was reminiscent of another by former premier Giulio Amato, who in July 1992 siphoned money out of every Italian bank account at a rate of 6 lire per 1,000 lire as the old Italian currency faced collapse. Just months later, Italy abandoned the European currency system and allowed the lira's value to be dictated by market forces during a period of intense currency speculation.

Berlusconi's "solidarity" tax could encourage greater tax evasion, as those who don't draw a declared salary from an employer would be tempted to hide income through cash payments to avoid the levy.

The hasty news conference by regional, provincial and city authorities held after the meeting with Berlusconi and his finance minister did not bode well for broad acceptance for new sacrifices. The proposed cuts to services such as transport and welfare would have "a depressive ... effect", hurting most the underclass and inhibiting the productive north of contributing to national GDP, Roberto Formigoni, the governor of the northern Lombardy state, told reporters.

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