Economy Minister Tommaso Padoa-Schioppa on Monday defended the government's hefty 2007 budget, saying that only the country's top earners would be hit by controversial tax hikes .
In an interview with several foreign dailies including London's Financial Times, the minister said the 33.4-billion-euro package represented a "good compromise" and that "the increase in fiscal pressure will only affect the highest incomes" .
"I set out to do the impossible in order to obtain the maximum possible," added Padoa-Schioppa, a highly respected economist who was a founding member of the European Central Bank .
The government approved the draft budget on Friday despite divisions among the nine parties in Premier Romano Prodi's centre-left coalition .
The budget extends the highest income tax rate of 43% to all those earning 75,000 euros per year or more. The top rate currently only applies to those earning 100,000 and upwards .
At the same time, those earning between 55,000 and 75,000 euros annually will see their tax rate lifted from 39% to 41% .
The opposition and some centrist parties in the government protest that these reforms penalise the middle classes .
But Padoa-Schioppa and Prodi argue that only 1.6% of Italians make more than 75,000 euros a year, according to income tax declarations, and hence they cannot be considered representative of the middle class .
They stress that those earning up to 40,000 - up to 90% of Italians - form the real "heart" of the middle classes and that they will see their tax burden reduced .
Prodi, whose first, 1996-98 government was brought down by a budget dispute, said on Sunday that "this is a budget which strongly helps those who have less, which will boost development and social justice and which will help the weakest" .
He also repeated that tough measures were required to bring down Italy's burgeoning budget deficit and debt levels, accusing the previous, centre-right government headed by Silvio Berlusconi of mismanaging Italy's accounts .
Italy's deficit has breached the EU's 3% limit for the past three years and is on line for exceeding 4.6% of GDP this year unless action is taken .
The previous government promised the European Commission that the deficit would be slashed to 2.8% by the end of 2007 and the EC has ruled out an extension on that deadline .
At the same time, Italy' debt mountain - the third biggest in the world - began rising last year for the first time in a decade and has been forecast to hit 108.3% of GDP this year .
The planned income tax rises should boost State tax revenues by some 7 billion euros. Padoa-Schioppa, said the budget should also reassure international credit ratings agencies .
Moody's remained cautious on Monday, saying it would only comment after it had been approved by parliament .
But the economy minister was confident it would undergo few changes, saying that any adjustments before the year-end approval would be "mainly technical" .
BIGGEST UNION UPBEAT BUT EMPLOYERS' FEDERATION NOT HAPPY CGIL, Italy's largest and most militant union, expressed approval on Monday .
In an interview published in Turin daily La Stampa, CGIL chief Guglielmo Epifani said he was pleased because the union's tax and development demands had been met .
"We wanted social and tax policies to help youngsters, those with precarious jobs, the elderly and those on a fixed income of less than 1,400 euros a year. From this point of view, our verdict is positive .
"We are also pleased because we wanted an investment policy which would lift development and again, the resources are there in the budget," he said .
But the powerful employers' union Confindustria was more critical .
In particular, it attacked plans to shift some of the funds that employers set aside for severance pay into the state pension system INPS .
Confindustria's Deputy Chairman Andrea Pininfarina branded this proposal "robbery" .
The opposition, meanwhile, has accused Prodi of betraying his campaign pledge not to raise taxes. It has vowed to organise street protests and battle the budget in parliament, particularly the Senate where Prodi holds a mere two-seat majority .
Budget measures aimed at helping businesses include 10% tax breaks for firms which invest in research as well as cuts in payroll taxes and contributions aimed at reducing the cost of labour and therefore helping companies become more competitive .
The manoeuvre also includes a 30% cut in the wages of government members, a 70-million-euro reduction in Senate spending over the next three years and a 1.8% drop in regional governments' 2007 spending budgets .
The budget contains measures to combat tax evasion, a widespread phenomenon in Italy, and increases fines and other penalties for companies caught breaking work safety laws .
Under-18-year-olds with a taste for drink also face a crackdown, with heavy fines for shops and bars caught selling them alcohol .
