Matteo Renzi Proposes Sweeping Tax Cuts
Italy’s new prime minister Matteo Renzi is reversing some of the worst aspects of the legacy of the Brussels-approved professional bureaucrat Mario Monti by proposing a package of tax cuts, which is mainly going to be financed by spending cuts. This is of course what should have been done from the very beginning. Better late than never though. However, there is one slight flaw that is rightly criticized by some observers:
“Italian Prime Minister Matteo Renzi on Wednesday presented a sweeping package of tax cuts, saying they could help economic recovery in the euro zone’s third largest economy 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 of 10 billion euros ($14 billion) annually for 10 million low and middle income workers from May 1.
“This is one of the biggest fiscal reforms we can imagine,” he told reporters after a cabinet meeting that approved the measures.
The cuts will be financed by reductions in central government spending, extra borrowing and by resources freed up thanks to the recent fall in Italy’s borrowing costs, he said.
Daniel Gros, the head of the Brussels-based think tank CEPS, said it was worrying that Renzi appeared to be back-tracking on previous pledges to finance any tax cuts entirely with structural spending reductions.
“This is not what Italy needs,” he said. “We don’t know what bond yields will do in the future and, with its huge public debt, the government cannot afford more deficit spending.”
Economy Minister Pier Carlo Padoan said the government would have to evaluate the effect of its measures on public finances and would need to seek EU approval if deficit and debt targets appeared in doubt. Renzi, the 39-year-old former mayor of Florence, said his agenda to stimulate the economy and reform Italy’s political system was the most ambitious Italy had ever seen as he reeled off tax-cutting plans that he insisted were fully funded.â€
