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The Italian austerity plan; a work in progress PDF Print E-mail
Dec 12, 2011 at 06:13 PM

Aaaaah. No Silvio here!

A week ago, Italy's new prime minister Mario Monti, announced the "Save-Italy" emergency austerity package designed to save some 30 billion euro in 2012 and to set in motion some virtuous tax and reform that hopefully will put this economically and financially-troubled country back on track. But the last word has yet to be said.
The austerity package was passed as what the Italians call a "decree-law", a temporary decree which then has to be voted into law by parliament and the legislature is now examining the more than 800 amendments that have been tabled.

The fact is that Monti and his Cabinet, however respectable and untarred by the brush of being politicians, do not on their own have the power to turn their plan into law. The critics who say the plan doesn't go far enough would do well to remember that it will have to be approved by a majority of the legislators in the Senate and Chamber of Deputies, about half of whom supported Berlusconi's government, while the other half was in the opposition.

Monti has said the package must be passed by Christmas if credibility with international financial markets is to be maintained. But at the moment a whole lot of political jockeying has been going on. Some 1300 amendments were presented (but only 800 were accepted as legitimate) designed to either make the package stronger some cases weaker. Monti has said some changes can be made as long as the total value of the austerity plan remains the same, but it is unclear if this will be possible.

The main points of the austerity plan are:

--A pension reform that immediately raises the retirement age to 62 for women (for now) and to 65 for men; makes contributions, not previous retribution, the basis for calculating pensions, means that in the not so distant future people will have to work 42 years to qualify for a pension and; takes away the cost-of-living adjustments (but this is a major sticking point) for all pensions over 1000 euros per month.

--Re-introduction of a property tax on owner-inhabited dwellings (what the Italians call the "prima casa") that was abolished by Silvio Berlusconi a few years ago and, given that almost 80% of Italians own their homes, was extremely popular. In addition, the coefficients used to calculate the value of real estate are to be raised, meaning that property taxes for other homes owned (empty or rented) may go up by as much as 75%. (Ouch. I own three properties!)

--Higher taxes for the rich. There have been no changes in income tax brackets but several sets of taxes - such as the property tax increases on second or third homes and rental properties mentioned above will certainly affect the "haves" more than the "have-nots". Starting in 2012, here will also be a tax of 0.1% (and of 0.15% in 2013) on financial investments. Special taxes will be placed on luxury cars, villas, private airplanes, and private boats that are longer than 7 metres in length.

--Excise taxes on gasoline and diesel oil, already sky-high in this country, were raised sharply last week bringing gasoline to 1.7 euros per litre.
(close to $10 per gallon!!!!)

--Crackdown on tax cheaters. Starting next year, all payments for work done or items purchased that cost more than 1000 euros will have to be paid by check or credit card and NOT in cash, which means they can be traced.

--Liberalization. To boost competition, considered key for future economic growth, certain categories will have to give up their protection from market forces. Thus, certain pharmaceuticals (those not paid for by the state) will be able to be bought in smaller para-pharmacies inside supermarkets or elsewhere, a greater number of which now be allowed, and between 600 and 800 new pharmacies will be able to get licenses. The power of the country's professional orders, or guilds, will be reduced by cutting requirements and training periods for professionals in several fields.

As can be imagined, not everyone is happy about the components of the package. Some people feel that it should have included a wealth tax for the very rich. Some are angry because there is so much opposition to a plan to reduce legislators salaries to bring them into line with the rest of Europe, that this may not happen. And some wonder what happened to the plan to raise money by selling off all or much of the unused state-owned real estate.

Yet others would have wanted deeper cuts in the "cost of politics", for example, meaning halving the number of national legislators, abolishing the provinces, cutting subsidies for election campaigns, reducing the number of official cars. What everyone keeps forgetting is that the people who will call the final shots are the legislators and although so far most of them have given backing to Monti - over 550 of the 630 members of the Italian lower house, the Chamber of Deputies, voted for him in a confidence vote over a week ago, there is no guarantee that they will continue to do so.


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