Rome

IMU, VAT lurk on govt horizon

Property-tax row rumbles on

IMU, VAT lurk on govt horizon

(By Denis Greenan). Rome, July 8 - The twin issues of averting a VAT hike and scrapping an unpopular property tax called IMU continued to lurk on the horizon of Italy's unprecedented left-right government Monday. Economy Minister Fabrizio Saccomanni said the government would be "hard-pressed" to find the money to cover both moves, sparking the ire of the People of Freedom (PdL) Party of ex-premier Silvio Berlusconi, who swept to second place in February's general election after promising to get rid of IMU and repay last year's take. Amid calls for Saccomanni's head, Premier Enrico Letta of the centre-left Democratic Party came out vigorously in his defence, saying: "Saccomanni is untouchable". Over the weekend there was intense media speculation that the government would now seek to fund the two measures by a mass sell-off of State holdings, especially lucrative but non-essential real estate, a move that has been repeatedly mooted in the past. But there was no confirmation of this Monday. Pundits said concrete details about how the government aims to fund the measures might come out of a government summit Wednesday. While the avoidance of a 1% hike in the top rate of VAT from 21% to 22% is relatively uncontroversial, IMU is a hot potato that is affecting the shaky stability of Letta's administration, cobbled together from traditional foes to end two months of post-election stalemate. PdL heavyweights have repeatedly threatened to bring the government down unless it is abolished. So far Letta has only put off a June instalment but has promised to "supersede" the tax. This has been taken to mean it will be lifted on most first homes - the media have said some 80% of primary residences - so that the worse-off and even the middle class will no longer have to pay what is seen as an unfair levy that strikes at a cherished and hard-won bulwark of Italians' diminishing prosperity amid the country's worst recession in more than 20 years. This would leave the owners of large property portfolios to be targeted, possibly by a tax with a different name. It remains to be seen whether this will be enough to placate the PdL, many of whose core voters have more than one home, and whether the government will be forced by Berlusconi's plug-pulling threat to refund the 2013 IMU proceeds as well, stretching a budget that must meet the 3%-to-GDP EU-mandated deficit ratio despite recent concessions for some pump-priming measures. On Monday Industry Minister Flavio Zanonato reiterated the government's pledges to avert the rise in VAT and cut IMU on Italians' first homes and industrial and commercial facilities, including factories, warehouses, farms, supermarkets and shops. Zanonato said cutting IMU would help give the economy "a much needed shot in the arm". He did not say how the move would be funded or whether last year's IMU revenue would be returned to taxpayers. Labour Minister Enrico Giovannini said both issues, as well as a long-awaited reduction in labour taxes to help try to get the economy going again, were "topics that should be left for the 2014 Stability Law," or next year's budget which is traditionally drafted in the autumn. A leading figure in the PdL, meanwhile, played down the long-running row and reiterated the centre right's view that eliminating both IMU and the VAT hike would be a "drop in the ocean" compared to the annual government budget. Daniele Capezzone, long-time PdL spokesman and now chair of the Lower House finance committee, said the moves would be "simple and cheap". "Simple things exist, even in the complexity and confusion of the current political phase. "There are two commitments that would do good for this country, that will do good to the Italian economy, that will benefit the popularity of this government and that, last but not least, cost relatively little," he said. "It has to do with the total abolition of IMU on the first home and on agriculture, and sterilizing the VAT increase. "Together, for 2013, they cost six billion euros, and that is, compared to 800 billion euros in annual national public spending, barely 0.75%, or a 1/133 fraction of the mountain of (total) public spending. "Is it possible that we are not capable of cutting public spending (by an amount) corresponding to this measure that is basically so modest? "If it is useful, or if someone is interested, I have at least three hypotheses for coverage ready - obviously realized through spending cuts...On all of this, 'pacta sunt servanda'," he said, a Latin dictum meaning, "agreements must be kept" despite international calls last week to keep IMU as a "fair and efficient" tax that has equivalents in virtually all developed countries. The International Monetary Fund said last Thursday that Italy cannot afford to lose the billions in euros that are now generated by IMU. Echoing the IMF, the chief economist and deputy secretary-general of the Organisation for Economic Cooperation and Development (OECD), Pier Carlo Padoan, said Friday the government should keep IMU. He suggested that property taxes are the least likely to dampen economic growth compared with payroll and other labour taxes that should be cut to boost Italy's recession-plagued economy.

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