Italy eyes tax hikes as cabinet meets on crisis

Italian Prime Minister Silvio Berlusconi called an emergency cabinet meeting yesterday to adopt measures expected to include tax hikes and spending cuts to shore up confidence in Italy's strained public finances. The meeting comes in response to demands from the European Central Bank (ECB) for urgent reforms to bring the budget into balance by 2013 and spur growth in Italy's chronically stagnant economy. European markets swung wildly last week on rumours about the health and funding needs of indebted governments in the Eurozone. After days of criticism for a lack of clarity on its plans, Italy's centre-right government looks set to levy a "solidarity tax" on high earners and raise the tax level on financial revenues, Italian newspapers reported yesterday. The measures were agreed in late-night discussions between Economy Minister Giulio Tremonti and Berlusconi but other steps, notably those concerning pension reform, remain to be decided. The government is looking for €20 billion (Dh104.5 billion) worth of extra savings and revenue to meet its new balanced budget target and reassure panicked financial markets it can control public debt running at 120 per cent of gross domestic product. Berlusconi and Tremonti held a series of meetings on Thursday with President Giorgio Napolitano and Bank of Italy Governor Mario Draghi as they scrambled to nail down details of the package. Business daily Il Sole 24 Ore said the "solidarity tax" would take the form of a five per cent addition to tax on income above €90,000 and a ten per cent addition to tax on income above €150,000. The tax rate on financial income would go up to 20 per cent from 12.5 per cent with the exception of income from government bonds, it said. Italian media reported Berlusconi was considering issuing a special video message to explain the austerity plan, which will fast-track a number of measures contained in a €48 billion package parliament passed in July. But major disagreements still remain and sensitive reforms to the pension system appear still undecided.