Italy’s Economy Minister Promises Housing, Labor Tax Cuts

Fabrizio Saccomanni cautions that the government might not have time to carry out its reform plans.

The skyline of Rome, Italy, February 18, 2011
The skyline of Rome, Italy, February 18, 2011 (Bjørn Giesenbauer)

Italy’s economy minister announced plans on Thursday to cut housing and labor taxes before suggesting that Enrico Letta’s new centrist government might not have the time to carry out such plans.

Fabrizio Saccomanni, who took office late last month when Letta formed a government that is backed by the country’s largest left- and right-wing parties, told a news conference in Rome that he intends to fund tax relief by cutting spending and clamping down on tax evasion.

“This is the program,” he said. “We’ll see how long we have to carry it out.”

Fractious

While the parties that support Letta’s administration command majorities between them in both chambers of parliament, the coalition is seen is fractious.

Former prime minister Silvio Berlusconi’s conservatives insist on the repeal of an unpopular housing tax although they haven’t made clear where they would cut in order to cover the €8 billion hole it would blow in this year’s budget.

Letta’s own social democrats would like to water down labor market reforms that were enacted by Mario Monti’s government, even if they have made it only slightly easier for firms to hire and fire workers.

Weak performance

Italy’s economy, the third largest in the eurozone, contracted 2.4 percent through last year when unemployment rose to over 11 percent.

Largely due to tax increases and pension reforms, the deficit fell to 3 percent of gross domestic product, in line with the European fiscal treaty, but Italy’s public debt, equal to nearly 130 percent of annual economic output, is still among the highest in the developed world.

Average hourly labor costs in Italy are close to the eurozone average but have continued to rise during the crisis, unlike was the case in Greece, Ireland and Portugal. Italian workers tend to be less productive than their Northern European counterparts.

Stalled liberalizations

Monti proposed to open up protected professions and liberalize the labor market, but he couldn’t get a coalition of the same parties that now support Letta to embrace his plans.

Thousands more pharmacies were supposed to be added, but union opposition forced the government into retreat. Efforts to lift professional restrictions on attorneys were halfhearted. Minimum tariffs imposed under Berlusconi’s administration were abolished, but in order to compensate lawyers a maximum was set on the number that can be employed in the industry, making it even harder for law graduates to start a business.

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