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Italy’s Austerity Measures becoming Clearer, Sort Of

The Effects of Italy's Austerity Measures?

Berlusconi is still beavering away trying to piece together Austerity Measures Two – the sequel.  Today just what has been cooked up may become slightly less opaque.  The total amount of money Italy stands to save has more than tripled from the Mark 1 austerity package’s €40 billion to around €131 billion.

Berlusconi is his usual optimistic self and seems to have resolutely refused to involve opposition party politicians in the cobbling together of the new round of austerity measures for Italy.

This is probably a mistake, as pushing the new package through Italy’s parliament with all due haste is not going to be a walk in the park.  Not only have Berlusconi’s own minions expressed certain reservations, but many opposition politicians have been moaning that the measures are likely to stifle Italy’s economy.  Indeed within the current proposals, structural reform, which is what Italy desperately needs, is conspicuous by its absence.

In times such as these, all politicians should forget their differences, sit down round a table and hammer something out.  But this is unlikely to happen, even if it could help save face for Berlusconi and give his party a better chance of being voted back in when general election time finally arrives.

Even Italy’s President Napolitano is concerned.  Napolitano declared that the Berlusconi government has been covering up the gravity of the economic crisis.

UPDATE: 31 August, 19:45 Italian time

It’s all becoming very confusing once again!  The proposed pension system changes mentioned in the update below this one may well be dropped in favour of an increase in VAT (IVA in Italian).  So the VAT increase appears to be back on.

Owning to the confusion, there have been calls for the Berlusconi led government to throw in the towel.  Everyone, including this Italy blogger is having a hard time understanding just which way the austerity wind will blow in the next 24 hours or so.

A further update will inevitably follow this one!

***end of update***

UPDATE: 30 August, 09:30 Italian time

After a mammoth 8 hour mini-summit on the austerity packages at Berlusconi’s Milan home, reports coming through indicate that the VAT (IVA in Italian) rate is to remain unchanged.

The “solidarity contribution” contribution tax increase appears to have been dropped in favour of a modification to Italy’s pensions system that includes changing the way in which “length of service” is calculated.

Note that politicians and those working in Italy’s public sector and earning over €90,000 will still have to pay the so-called “solidarity contribution” tax.

Another measure regards Italy’s expensive political system – the number of members of Italy’s parliament is to be halved, although this will require a constitutional amendment.

Small local authorities will continue to exist but will be required to pool services, and cuts in the spending of larger local authorities are to be reduced from 9.2 to 6.2 billion Euros.

Italy’s provinces are with less than 300,000 inhabitants are likely to be extinguished after the appropriate modifications to Italy’s constitution have been made.

Tax advantages for Italy’s cooperatives will be reduced.

Tax evasion is to be tacked via tightened regulations concerning the setting up a companies to “house” luxury goods and reduce tax liability.  It is not known how this will be achieved.

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No sign of structural reforms, alas.

Reactions?

Opposition parties are calling the latest austerity proposals messy.

Italy’s new “Third Pole” coalition (a curious mix of left, right and centre) has created a counterproposal.

Will hunt for observations from those who are not politicians.

***end of update***

What’s new?

VAT Up

It now looks as if a VAT increase (from 20% to 21%) is on the cards, as the income this will generate should mean that the odd proposal for a “solidarity contribution” tax increase will only be applied to those 83,000 Italians who declare an annual income of more than €200,000.  However, it is sounding as if Silvio Berlusconi wants to eliminate the “solidarity contribution” tax altogether.

Savings will most likely be made, Italy’s deficit may well fall, but at what cost to the country’s future?  This is something which has been worrying Industry Confederation boss Emma Marcegaglia who believes that the austerity manoeuvres will depress Italy’s economy even further.

Italy’s unions do not seem to be too happy either, and one of the biggest, CGIL, has called a general strike.

At present, Italy’s footballers are striking over pay and were unhappy that they would be hit by the so called “solidarity contribution” tax.

Reasons to be Worried

The Effects of Italy's Austerity Measures?
The Effects of Italy's Austerity Measures?

Many do have reason to be worried.  It is, after all, the less than stellar performance of this current Italian government which has left Italy up to its neck in the mire.

Not even the formerly much lauded Giulio Tremonti, Italy’s finance minister, has managed to point Italy’s stagnant economy in the right direction.  And it must be remembered that during the Berlusconi government’s tenure, Italy’s public spending has increased by a huge 50% and nobody seems to be able to explain why this has happened.

Berlusconi Held to Ransom

On top of all this, the Berlusconi government is effectively being held to ransom by the tiny Lega Nord party and cannot do a thing without the OK of one Umberto Bossi for fear of the government crumbling.

What does not bode well is that the Lega Nord/Northern League has made it perfectly clear time and time again that it is not interested in Italy as a whole.   All it is bothered about is some mythical land in northern Italy which goes by the name of Padania.

The Lega only really wants to divide Italy into a series of federal state things.  If implemented properly, this may not be such a bad idea for Italy, but knowing Italy, it will not be.  In fact, a sort of semi-federalisation is in the process of taking place, but what will ultimately happen, is anyone’s guess.  The Lega Nord seems to be having some problems coming to terms with the differences between ‘autonomy’, ‘secession’, and ‘federal’ though.

It looks as if Lega Nord supporters, after years of promises and not much in the way of results, are starting to lose faith in their cigar-chomping hard talking constantly u-turning leader.  There is talk of his being replaced by Italy’s interior minister Roberto Maroni, but this is not going to happen before the latest round of austerity measures are pushed through – if they ever are, that is.

What next?

A battle with daggers drawn over which bits and bobs will form the new version of Italy’s austerity package.  The combat will be bloody and after the dust has settled any victory may well end up being of the Pyrrhic variety.

The really sad thing though, is that Italy does have the potential to do very well – what it needs more than anything else is good management.

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