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Last updated: October 15, 2013 11:20 pm
Italy’s coalition government was battling to meet a deadline set by the European Commission for submission of its 2014 budget on Tuesday, with the final text said by officials to be likely to contain blanks to be filled in later because of internal divisions over how to finance planned cuts in taxes on labour.
Enrico Letta’s cabinet was due to meet on Tuesday evening to hammer out final details amid reports that Beatrice Lorenzin, health minister, had threatened to resign over the size of spending cuts planned for the health sector.
Delays and divisions over the budget reflect the instability of Mr Letta’s fragile left-right coalition despite the prime minister’s success this month in seeing off a threat by Silvio Berlusconi, leader of the main centre-right party, to bring down the joint government they formed last April.
Mr Letta told reporters during a break in the cabinet’s evening session that there would be no cuts in the health sector over the next three years. Ms Lorenzin expressed her satisfaction with the outcome.
“We have respected the October 15 date even though political tensions in recent months have made our work difficult. But we have rushed and today we will approve a budget,” Mr Letta said before the cabinet resumed its work with a midnight deadline looming.
The government issued a statement just minutes before the midnight deadline saying next year’s budget had received cabinet approval. Its main goal, it said, was to reduce taxes on families and the private sector through spending cuts, privatisation of state assets and other means.
The budget contains a reduction in taxes for workers worth €5bn spread over the 2014-2016 period, and worth €5.6bn for companies, Mr Letta said, quoted by Reuters.
Mr Letta’s stated priority is to return Italy to growth after its longest postwar recession, during which it has lost about 8 per cent of gross domestic product over the past five years. But plans to stimulate output and jobs by reducing Italy’s high cost of labour are constrained by a 3 per cent budget deficit ceiling agreed with Brussels and the need to cut a €2tn public debt that is expected to reach 133 per cent of GDP this year, the second highest ratio in the eurozone after Greece.
Fabrizio Saccomanni, finance minister, who was in Luxembourg on Tuesday for a meeting of his European peers, said there was agreement on a budget that would give “strong support” to workers and business plus a large increase in investment spending.
But Mr Saccomanni’s ministry has become sidelined in the budget dispute, which has turned into a political battle in a test of how long Mr Letta can keep his coalition in office. Mr Berlusconi’s People of Liberty party has effectively split into two camps with “loyalists” laying claim to be his true “liberal” heirs calling for a more radical budget.
The European Commission confirmed its deadline for the budget to be submitted for approval was midnight on Tuesday. A government official, who asked not to be named, said the text could be sent early on Wednesday with some blanks to be completed by the weekend. Parliament is expected to start its debate next month.
Media reports said the reduction in labour costs would amount to €5bn. Confindustria, a business lobby, has called for twice that amount. Economists Tito Boeri and Giuseppe Pisauro wrote that Italy’s labour taxes, the second most costly in the EU after Belgium, should be reduced by at least €15bn and be financed by use of European funds and cuts in public expenditure.
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