Renzi Announces Tax Cuts as Parliament Approves New Voting Law

Italy’s new prime minister promises to reduce business and income taxes but is short on the details of spending cuts.

Italian prime minister Matteo Renzi arrives in Brussels to attend a European Council summit, March 6
Italian prime minister Matteo Renzi arrives in Brussels to attend a European Council summit, March 6 (European Council)

Italian prime minister Matteo Renzo has said his government will cut business and income taxes by €10 billion and reform labor laws in order to bring down a record 12.9-percent unemployment rate.

The tax relief, which Renzi said will put an extra €80 in the pockets of workers each month, should be funded by extra budget cuts — including a reduction in the number of F-35 fighter jets Italy is buying from Lockheed Martin — and higher borrowing.

This reneges on a pledge to finance tax cuts entirely through spending reductions.

Labor reforms

The former Florence mayor said his proposals to overhaul Italy’s labor market may include enhanced protections of newly-hired workers and an extension of unemployment benefits.

Italian workers are notoriously difficult to fire, making firms reluctant to hire young workers.

Among Italians under the age of 25, unemployment stands at 42.4 percent.

Protections

Renzi’s own social democrats watered down labor reforms that were proposed by one of his predecessors, Mario Monti, in 2012.

Monti wanted to open up protected professions and liberalize the labor market, but opposition from trade unions and the left forced his government to shelve plans to add thousands more pharmacies and streamline the dismissing of staff.

Efforts to lift professional restrictions on attorneys were halfhearted. Minimum tariffs 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 firm.

High labor costs

Average hourly labor costs in Italy are close to the eurozone average but have continued to rise during what is the country’s worst recession since the end of World War II — unlike was the case in Greece, Ireland and Portugal.

Italian workers also tend to be less productive than their counterparts north of the Alps.

Electoral reforms

In a show of support for Renzi, parliament voted on Wednesday to enact electoral reforms that are designed to prevent a repeat of last year’s election, when neither the left nor the right was able to secure majorities in both chambers.

The reforms, which Renzi negotiated with the conservative party leader Silvio Berlusconi, have yet to be approved in the Senate. They would introduce electoral thresholds and guarantee the winning party or bloc a majority of the seats in the lower chamber.

A separate law would reduce the Senate, which currently has equal lawmaking power, to a regional assembly.

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