Italy Cuts $5.6 Billion From Budget To Avoid Sales Tax Hike

The Italian government will cut 4.2 billion euros ($5.6 billion) from the budgets of numerous ministries and public services over the next six months, said Prime Minister Mario Monti, in the hopes of avoiding a sales tax hike that would have harmed consumer confidence even further.

Monti was speaking to journalists after a five-hour-long Cabinet meeting late on Monday, where the government sought to discuss ways on how to eliminate wasteful spending, implement better purchasing policies, and sell unused government properties.

The Italian government will cut 4.2 billion euros ($5.6 billion) from the budgets of numerous ministries and public services over the next six months, said Prime Minister Mario Monti, in the hopes of avoiding a sales tax hike that would have harmed consumer confidence even further.

Monti was speaking to journalists after a five-hour-long Cabinet meeting late on Monday, where the government sought to discuss ways on how to eliminate wasteful spending, implement better purchasing policies, and sell unused government properties.

These steps, according to Prime Minister, would overturn a decision made in October last year, in which the technocrat government had originally wanted to increase the value added tax (VAT) from 21 percent to 23 percent.

“Growth is the vital objective,” said Monti, as quoted by the Financial Times, noting a past decade of virtual economic stagnation.

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Public anger surrounding the prospect of further tax increases, coupled with sharp rises in the cost of electricity and petrol, may have also altered the government’s hand – especially as much of the anger had been directed at the country’s main parties for refusing to cut their generous public funding.

[quote]Nevertheless, Monti warned that a hike in the VAT sales tax was still possible, though “for now we can say that we hope to have, from the reduction of spending, sufficient benefits” to avoid the increase.[/quote]

The Prime Minister also took pains to lash out at previous administrations, stressing that Italy’s present fiscal burden was due to “mistaken choices” of the past. According to Monti, chronic tax evasion and the “hidden tax of corruption in public contracts and hiring,” were also to blame for new or higher taxes to reduce the national debt.

[quote]“Today we are faced with the necessity of making up for the time lost,” Monti said. “And not in years, but in months.”[/quote]

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During the press conference, the Prime Minister also announced the appointment of Enrico Bondi, as a commissioner to oversee the savings drive and rationalise costs.

Bondi is well known as a turnaround expert, who successfully restructured Italian food giant Parmalat after a spectacular corporate crisis in 2003.

Bondi is also known to be an efficiency-obsessed manager, and will be tasked in deciding which ministries will receive cuts in their spending.

“I am grateful to Bondi for his having accepted this heavy task. We have pinpointed in him the person most respected in Italy for his resolute work on restructuring and cost-cutting,” said Monti, as cited by the Associated Press.

Economists though were mixed in their reactions to the announcement, with some saying that the government had to move faster in their spending review.

“It’s a positive signal because the government finally decided to proceed with specific, quantified interventions.”

“But I hoped they could announce concrete measures instead of appointments,” said Tito Boeri, a professor of economics at Bocconi University in Milan, to the New York Times.