Italy moves to centralize budgets, avert sales tax hike

Tue Oct 9, 2012 1:48pm EDT
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By Giuseppe Fonte

ROME (Reuters) - Italy plans to reduce tax breaks for companies and cut spending on health care, a minister was quoted as saying, thereby avoiding a politically damaging increase in sales tax next year.

The government is also moving to wrest back control of spending in key areas from the country's bloated regional administrations, sources said, widely seen as responsible for much of the waste and inefficiency that is plaguing the recession-hit economy.

Prime Minister Mario Monti and Economy Minister Vittorio Grilli outlined measures the cabinet will take at a meeting later on Tuesday when it is due to approve its annual budget, or Stability Law.

The Law will raise 10-12 billion euros of resources next year through a mix of spending cuts and tax hikes, Grilli told trade unions and employers, according to a source present at the meeting.

Grilli said revenues raised through a tax on financial transactions to be decided at the European level would also contribute.

More than half of the proceeds will be used to avoid an increase in sales tax that has been earmarked for July, with the rest going to fund new spending, including incentives to try to boost growth, the minister said.

Monti had been desperate to avoid a hike in sales tax, which would have dragged on already falling consumer spending and delivered another hit to an economy that the government expects to contract by 2.4 percent in 2012.

The 2013 budget deficit is targeted to fall to 1.8 percent of output from a targeted 2.6 percent this year thanks to measures already adopted, with the law to be approved on Tuesday not changing the government's net fiscal position.   Continued...