Government Approves Handing More Tax Powers to Italy's Local Authorities
By Lorenzo Totaro - Oct 7, 2010 1:18 PM GMT+0200 Thu Oct 07 11:18:17 GMT 2010
Italy’s government approved a decree to give local authorities the power to set some taxes and hold on to more of the levies paid in their regions to finance local public services, including health care.
“Italy is the only European country that doesn’t have local financing, it’s all centralized,” Finance Minister
Giulio Tremonti said at a press conference in Rome today to explain the plan.
Under the new rules, regional governments will be able to hold on to some of the value-added taxes collected, and reduce or eliminate a regional corporate tax known as IRAP. Tremonti didn’t give details about how the change will affect personal income-tax collection.
The devolution plan is key to Prime Minister
Silvio Berlusconi maintaining the support of his main ally, the Northern League party.
Umberto Bossi, the party’s founder, has championed the legislation, saying that wealth from the north is siphoned off to finance the economically depressed south. Bossi brought down Berlusconi’s first government in 1994 when he pulled out of the ruling coalition.
Maintaining the support of the Northern League has become more critical since
Gianfranco Fini, who co-founded Berlusconi’s
People of Liberty party, broke with the premier in July, potentially denying the government a parliamentary majority.
Today’s decision “bodes well” for the continuation of this government, said
Roberto Calderoli, a Northern League leader and minister for legislative simplification.
Tax Overhaul
Shifting more authority to local governments won’t raise overall tax rates, and once the so-called federalism plan is implemented, the government will overhaul the national tax system, Tremonti said. Local authorities will be forced to exercise tighter controls over their finances and those that reduce or eliminate the IRAP tax will have to cut spending to compensate for the lost revenue, Calderoli said.
Any abuse of the expanded tax power by local governments will be punished by blocking officials from seeking reelection or dissolving the regional administrations, Calderoli said.
Berlusconi’s Cabinet today passed a decree containing the measures that will require the approval of parliament. The premier said yesterday that the changes would help reduce disparity in costs across the country’s 20 regions for services such as health care. The government, which is scheduled to end its term in 2013, earlier this year passed spending cuts of 25 billion euros ($34 billion) over the next two years to try to contain its budget shortfall.
Italy has managed to contain its deficit more than the other so-called peripheral euro-area countries such as Greece and Spain, though it maintains the highest debt in the region at more than 115 percent of gross domestic product and close to twice the European Union limit. Italy’s deficit at 5.3 percent of GDP last year, is less than half that of Ireland, Greece and Spain.
(Bloomberg)
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