In a bid to straighten Italy's public accounts, the centre-left government of Premier Romano Prodi on Friday approved an emergency 7-billion-euro supplementary budget.
The manoeuvre will amount to 0.5% of GDP, Economy Minister Tommaso Padoa Schioppa told reporters after the cabinet greenlighted the measures. Stressing a requirement to bring Italy's burgeoning deficit back within the European Union limit of 3%, the minister said the mini-budget included an almost one billion euro cut in public spending in 2006 followed by a further 1.3 billion reduction in 2007.
"This is a step towards getting the deficit back below the 3% ceiling," he said, adding that he would present a detailed report on the operation to Brussels next week. Italy's deficit has breached the EU's 3% limit for the past three years and could exceed 4.6% of GDP this year unless tough containment measures are taken.
The previous, Silvio Berlusconi-led government predicted a deficit of 3.8% this year and promised the European Commission that it would be slashed to 2.8% by the end of 2007. The EC has ruled out an extension on that deadline
despite the worse-than-expected state of Italy's public finances.
At the same tme, Italy's debt mountain - the third biggest in the world - began rising last year for the first time in a decade and is expected to hit 108.3% of GDP this year.
International credit rating agencies have warned they may downgrade the country's credit ratings unless concrete action is taken on the deficit and debt fronts. Prodi, who narrowly defeated Berlusconi in Italy's April general election, underscored in a press conference that the mini-budget was also geared towards kick-starting the stalled economy.
"Our aim is to consolidate the public accounts in a progressive and stable way while paying attention to the needs of families, businesses and workers," said the former EC chief.
"What we are calling a mini-budget is in reality an engine for igniting economic recovery," he said. The premier cited a wide-ranging package of measures aimed at boosting competitiveness, saying they represented a "radical overhaul".
The package includes plans to increase the powers of the Antitrust Authority and stiffen the fines applied to offending firms; open up the pharmacy sector by allowing supermarkets to sell drugs; liberalise local public services; and abolish restrictions on the number of taxi licences local authorities are allowed to distribute.
Prodi went on to stress that cracking down on tax dodgers and eliminating wasteful spending in the public sector were two of the government's key priorities. Friday's manoeuvre included several measures aimed at curbing tax evasion, such as a norm requiring retailers to inform the tax authorities of their daily takings and another forbidding the use of cash in the payment of fees for lawyers, notaries, doctors, architects and accountants.
The centre-right opposition decried the mini-budget as a "tax sting" and accused the government of creating a false state of alarm over the public accounts. Berlusconi's party Forza Italia said that "this is a pure and simple increase in the level of fiscal pressure... You don't reduce poverty by punishing the rich".
The rightist National Alliance (AN), Berlusconi's biggest ally, said that "if the government has approved a manoeuvre which is less than half a point of the GDP, then the situation is obviously not as bad as they were making out".
Former economy minister Giulio Tremonti said that the impact of the corrective measures in the mini-budget for 2006 amounted to less than 3 billion euros. "That's no bigger than a mosquito bite... This manoeuvre will harm the economy and do nothing for the public accounts," he said.
