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Italy: Government Approves Austerity Package

(July 20, 2011) The Italian government approved an austerity package on July 15, 2011, aimed at achieving a balanced budget in 2014. It is reported to include budget cuts of €48 billion (about US$67 billion) over three years. (Emanuela Santoro, Austerity Package Approved by Government, TNS ONLINE (July 18, 2011), International Bureau of Fiscal Documentation online subscription database; Italian Senate Passes Austerity Package, BBC NEWS (July 14, 2011).)

The Law of July 15, 2011, No. 111, Conversion into Law, with Amendments, of Decree-Law July 6, 2011, No. 98, Containing Urgent Provisions for Financial Stabilization, was published in the OFFICIAL GAZETTE on July 16. (Legge 15 luglio 2011, n. 111, Conversione in legge, con modificazioni, del decreto-legge 6 luglio 2011, n. 98 recante disposizioni urgenti per la stabilizzazione finanziaria. (11G0153), 164 GAZZETTA UFFICIALE DELLA REPUBBLICA ITALIANA (July 16, 2011).) Some of the key elements of the Law have been summarized as follows.

Revenue measures:

  • Privatization of state-controlled entities;
  • Increased taxes for holders of financial instruments above certain amounts;
  • A higher tax rate for banks, financial/insurance companies, and insurers;
  • Limits on companies' loss carry forward option;
  • Additional taxation of variable compensation, such stock options and bonuses, for managers;
  • Increased gasoline and diesel tax;
  • Increased road tax for large automobiles; and
  • Amnesty for minor tax disputes upon payment of a small amount or of a percentage of the disputed amount. (Santoro, supra.)

Spending cuts:

  • 10% reduction in public financing for political parties and limits on compensation for elected officials;
  • Reduced funding for town councils and provinces;
  • Reduced medical expenditures by the state;
  • A freeze on public servants' salaries until 2014;
  • Savings from state pensions by means of delayed retirement (for women in the private sector, the retirement age will be changed from 60 years old to 65, as of 2032) and imposition of a tax on pensions over € 90,000 (about US$126,650); and
  • Introduction of automatic increases to the retirement age on the basis of regular assessments of life expectancy. (Id.)

The Law also includes, among other features, tax breaks for young entrepreneurs. (Id.; for a comparison of the text of Decree-Law No. 98 and the changes made by conversion Law No. 111, see Legge Stabilizzazione Finanziaria 2011, LAVOROROBERTO.IT (last visited July 19, 2011) [choose the hyperlink Decreto Legge 6 luglio 2011, n.98 – Disposizioni urgenti per la stabilizzazione finanziaria (G.U. 6 luglio 2011 n. 155) con le modifiche apportate dalla legge di conversione 15 luglio 2011, n. 111 (G.U. 16 luglio 2011 n. 167)].)

An initial proposal to permit only 1% of certain infrastructure assets to be amortized was discarded after infrastructure companies, like toll road operator Atlantia, raised an outcry and warned that such a measure would hinder investment in Italy. The ceiling would have raised the taxes owed by such companies because it would have extended the period during which they would have had to deduct motorway asset costs; to compensate for its missed savings, the government will reduce the tax deduction options available in connection with a “clean-up fund” paid into by the infrastructure groups. (Giuseppe Fonte & Stefano Bernabei, UPDATE 1-Italy Budget to Lift Infrastructure Amortisation Cap, REUTERS (July 12, 2011).)

Prime Minister Silvio Berlusconi has characterized Italy as being “on the front line of the eurozone's economic difficulties,” and Finance Minister Giulio Tremonti stated in Parliament “the monster debt from our past will swallow up our future'' unless the budget were adopted. Earlier in July, moreover, the International Monetary Fund had requested Italy to ensure the “decisive implementation” of spending cuts. (Italian Senate Passes Austerity Package, supra.)

The text of Law No. 111 as coordinated with Law No. 98 reportedly will be published in issue number 171 of the OFFICIAL GAZETTE, on July 25, 2011. (Manovra: in Gazzetta la Legge di conversione 111-2011, WARRANT GROUP (July 18, 2011).)