ROME: The Italian Minister of the Economy and Finance, Pier Carlo Padoan, sent a letter to the European Commission (EC) on February 1, confirming that Italy will introduce additional budgetary measures to reduce its forecasted fiscal deficit for this year.
The EC had confirmed on January 17 that, by its calculation, Italy would breach its “required adjustment path” this year under the European Union’s medium-term budgetary objectives. Padoan warned that, if the Government fails to act, there is a real risk that infringement proceedings could be initiated by the EC against the country.
The EC is requiring that the Government introduce policies that will reduce the fiscal deficit in 2017 by at least 0.2 percent of gross domestic product, or EUR3.4bn (USD3.7bn). Measures will be required to be in place by the end of April at the latest.
Although details remain to be worked out by the Government, it has been decided that one-quarter of the deficit reduction will be found from government spending cuts and the remaining three-quarters, or some EUR2.5bn, will involve a rise in the tax burden.
While it was confirmed that value-added tax (VAT) rates would not need to be touched, it has been indicated that, to obtain an extra EUR1bn from the Government’s anti-tax evasion effort, there could be an extension to the use of the reverse charge mechanism that moves liability for VAT payments from the supplier to the customer.
Other prime targets to produce extra revenue could be found, as is customary, from excise duty hikes on tobacco and petrol products. On the other hand, the Government will be intent on protecting existing tax deductions and credits, as well as the corporate tax rate reduction, from 27.5 percent to 24 percent, which was contained in its 2017 Budget, and which has already received parliamentary approval.
