World Bulletin/News Desk
Italian Prime Minister Matteo Renzi on Wednesday presented a sweeping package of tax cuts, saying they could help economic recovery without breaking EU budget deficit limits.
Renzi, in his first full news conference since taking office last month, said income tax would be reduced by a total 10 billion euros ($14 billion) annually for 10 million low and middle income workers from May 1.
The 39-year-old former mayor of Florence said his agenda to stimulate the economy was the most ambitious Italy had ever seen as he reeled off measures he insisted were fully funded.
"This is one of the biggest fiscal reforms we can imagine," he told reporters after a cabinet meeting that approved the measures.
Italy is struggling to emerge from its longest post-war recession and Renzi has made clear that job creation and growth, rather than austerity, will be the focus of his government.
He said the detail of the tax cuts would be set out in the government's annual forecasting document released next month and made clear the budget deficit goal would be raised while remaining below the EU's ceiling of 3 percent of output.
Italy is currently targeting a deficit of 2.5 percent of GDP this year after 3.0 percent in 2013.
The tax cuts will be financed by reductions in central government spending, by extra borrowing and by resources freed up thanks to the recent fall in Italy's borrowing costs, he said.
"We will respect our European commitments," Renzi said, adding that he expected EU authorities would take note of Italy's reform efforts in judging its public finances.
As well as the income tax cuts, Renzi said the regional IRAP business tax would be reduced by 10 percent, to be financed by an increase in taxation of income from financial instruments to 26 percent from 20 percent, with the exclusion of government bonds, which are popular with Italian savers.
He also promised that around 90 billion euros of debt arrears owed by the state to private sector suppliers would be fully paid off by the end of July.
His predecessor Enrico Letta paid off around 22 billion euros of these arrears in 2013, pushing up the vast public debt as a result.
Renzi did not explain how he would pay the remaining 68 billion euros without adding to public debt, which is already the second biggest in the euro zone as a proportion of gross domestic product after Greece's.
Renzi, who heads a broad coalition, was speaking after the lower house of parliament approved a new electoral law on Wednesday aimed at ensuring more stable governments.
That reform, aimed at preventing a repeat of last year's deadlocked election by favouring bigger parties and stronger coalitions, must now go to the Senate, where it is likely to face additional amendments from Renzi's own centre-left Democratic Party (PD).