Tough cuts
June 30, 2011
Italian Prime Minister Silvio Berlusconi's cabinet approved an austerity program on Thursday meant to eliminate Italy's budget deficit by 2014. The plan includes 47 billion euros ($68 billion) in spending cuts, but the real pain won't be felt for some time
Within Europe, Italy has the second largest debt after Greece, at 120 percent of its GDP. The European Union has put pressure on Italy, Europe's third largest economy, to get its financial act together. And last week credit rating agencies warned Italy's rate would be cut if it didn't get a handle on the debt.
Fiscally conservative finance Minister Giulio Tremonti designed the budget with the idea of preventing the kind of debt crisis currently facing Greece. But, to please his center-right coalition, which is scheduled to face elections in 2013, the bulk of the cuts will come about after Italians head to the polls that year.
In the first year, only 2 billion euros will be cut. The year after, the budget will be reduced by only 5 billion more euros. The bulk of the cuts - 40 billion euros - come after a new government will be elected.
"Instead of making the necessary difficult cuts, this government has postponed them," said former Berlusconi coalition member Italo Bocchino.
Who will pay?
The cuts will hit public servants hard along with the regions and municipalities that are mostly controlled by the center-left. Italy's opposition has called the package a time bomb.
"These cuts only damage Italy," said opposition parliamentarian Massimo Donadi. "They reduce pensions and make people pay fees for healthcare but do nothing to reduce politicians inflated salaries or reduce waste in government."
Another feature of the austerity package is a separate tax decree that will lower taxes on formally-declared income and help get rid of loop holes. Finance Minister Tremonti estimates Italy loses 150 billion euros a year in tax evasion. Losses that Italian politics professor, Roberto D'Alimonte, said gets unfairly picked up by certain workers and businesses.
"The tax system in Italy weighs disproportionally on workers, the cost of labor and on profits on small and medium companies," he said.
It's those small and medium companies that form the backbone of the Italian economy. Those companies have become less and less patient with what that they say is a government that has let the economy slide.
Author: Megan Williams, Rome / hf
Editor: Andreas Illmer