Rome

Property-tax row keeps Letta govt on tenterhooks

PdL reacts after Saccomanni says scrapping property tax unfair

Property-tax row keeps Letta govt on tenterhooks

(By Paul Virgo) Rome, August 9 - Premier Enrico Letta's left-right government was engulfed in more turmoil on Friday, when a row over a property tax added to the tension that followed the supreme court's decision to uphold a tax-fraud verdict against Silvio Berlusconi last week. Letta pledged the issue of the unpopular IMU property tax would be resolved by the end of the month to cool the firestorm after ex-premier Berlusconi and outraged members of his People of Freedom (PdL) party reacted with fury to comments made one day earlier by Italy's economy minister. Fabrizio Saccomanni said it would not be fair to eliminate the tax, adding that the country cannot afford to lose the billions in revenue it generates. "Italy should not be afraid of the future," said Berlusconi, who made scrapping IMU his key pledge in the run-up to February's general election and has threatened to sink the grand coalition government if it is not respected. "We will never fail in our IMU commitment," he added, saying the issue was a "battle for freedom". The latest round in the long-running battle over the tax came Thursday, when Saccomanni said that abolishing the IMU property tax would cost the government 2.426 billion euros in revenue in 2013. In a list of nine hypothetical reforms to the tax, Saccomanni laid out the impact on revenue and the effects on taxpayers. "The proposed exemption of IMU for primary residences does not seem fully justified in terms of fairness and efficiency," said Saccomanni, a non-political former deputy governor of the Bank of Italy. Junior Economy Minister Stefano Fassina, a member of Letta's centre-left Democratic Party (PD), said the PdL should now drop its demand for IMU's abolition so the government could help the unemployed and families in hardship during the recession instead of the "Scrooge McDucks" of the world. Letta's fragile government is based on an unnatural alliance between the long-standing rivals in the PD and PdL, who came together in April to end two months of deadlock after February's inconclusive general election As well as promising a resolution on IMU, Letta on Friday warned the feuding parties supporting his government that the threat of Italy facing a financial meltdown has not been completely averted. Many commentators see the coalition in danger of collapsing soon after the tax-fraud verdict and Foreign Minister Emma Bonino admitted Friday that the challenge the government faced amid the turmoil was close to "impossible". Letta reminded the parties of the situation two years ago, when Berlusconi was forced to step down as premier at the height of the eurozone crisis to make way for Mario Monti's emergency technocrat administration. At the time the cost of servicing Italy's huge public debt soared, with the spread between the 10-year Italian bond and the German benchmark reaching over 500 basis points and the country looking in danger of a Greek-style meltdown. The spread, a key measure of investor confidence, dropped after Monti introduced a series of tax hikes and spending cuts to improve Italy's public finances before Letta's executive took power in April. The spread has remained steady since last week's verdict, and briefly touched a two-year low on Friday, a possible sign the money markets do not expect the government to collapse immediately. But Letta warned that this may not remain the case if the turbulence escalates further. "I hope the Italian political world does not forget the importance of interest rates and the spread," Letta told a press conference. "I have the impression that it was talked about a lot in 2011, but then, as often happens in Italy, it wasn't digested and it wasn't talked about any more. "Confidence has returned to the markets, as shown by the spread. This confidence should encourage us to press on, not to stop". Letta stressed, however, that he did not think the government was an unsteady as it might look. "You know that we are used to sailing on a ship in storms, waves and billows," he said. "The ship is proving to be more solid that our critics thought".

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