FACTBOX-What’s in Italy’s austerity package

By Gavin Jones

ROME, May 26 (BestGrowthStock) – Italy’s cabinet approved an
austerity package late on Tuesday to cut the budget deficit by
24 billion euros in 2011 and 2012, to lower it to 2.7 percent of
gross domestic product in 2012 from 5.3 percent last year.

Here are some key measures in the plan, which is based
largely on spending cuts, according to government documents and
comments from officials.

Few details were released after the cabinet meeting, so some
details could have changed slightly, and precise data on the
savings to be achieved from the individual measures has still
not been issued.

SPENDING CUTS

* Cuts in funding to city and regional governments. Local
government chiefs said these amounted to more than 13 billion
euros in 2011-2012.

* Three-year freeze on public sector pay rises.

* Cuts for three years in public sector hiring, replacing
only one employee for every five who leave.

* Progressive pay cuts of up to 10 percent for high earners
in the public sector, including ministers and parliamentarians.

* Delay of three or six months in retirement for those who
reach retirement age in 2011.

* 10 percent cut per year in 2011 and 2012 in spending by
all government ministries.

* Abolition of provincial governments with less than 220,000
inhabitants.

* Abolition of publicly funded think-tanks, including ISAE,
which conducts Italy’s consumer and business confidence surveys.
ISAE’s tasks will pass to the economy ministry.

REVENUE-RAISING

* Partial amnesty for people with houses they have not
declared to the authorities.

* A crackdown on tax evasion and false benefit claims

This includes:

— 100,000 checks per year in 2010-2012 on claims for
invalidity pensions.

— A ban on cash payments for sums above 5,000 or 7,000
euros.

WHEN WILL THE MEASURES TAKE EFFECT?

The vast majority of the above measures will take effect in
2011. A few will be brought forward to 2010.

WHAT ARE ITALY’S MOST RECENT ECONOMIC FORECASTS?

Following are the government’s multi-year targets issued on
May 6. Previous forecasts, issued in January, are in brackets.

2010 2011 2012
GDP 1.0% (1.1%) 1.5% (2.0%) 2.0% (2.0%)
DEFICIT/GDP 5.0% (5.0%) 3.9% (3.9%) 2.7% (2.7%)
DEBT/GDP 118.4% (116.9%) 118.7% (116.5%) 117.2% (114.6%)
PRIMARY BALANCE* -0.4% (-0.1%) 1.0% (1.3%) 2.5% (2.7%)
UNEMPLOYMENT RATE 8.7% (8.4%) na (8.3%) 8.2% (8.0%)
TAX/GDP RATIO 42.8% 42.4% 42.3%

*excludes debt servicing costs

HOW URGENT IS DEFICIT REDUCTION FOR ITALY?

Italy has been spared the worst of the market volatility
since Greece’s debt crisis exploded, thanks mainly to the
cautious fiscal policy of Economy Minister Giulio Tremonti,
meaning it is now under less pressure to adopt draconian cuts.

Italy shunned large-scale stimulus during the recession of
2008 and 2009 and its deficit, at a projected 5 percent of GDP
in 2010, rose far less than in Greece, Spain, Portugal, Ireland
or Britain, which are all in or close to double digits.

However Italy remains vulnerable due to its massive public
debt of around 118 percent of GDP. Markets and ratings agencies
want evidence that recent rises in the debt can be reversed
through structural deficit cuts and pro-growth policies.

ARE THE MEASURES SURE TO BE APPROVED?

Prime Minister Silvio Berlusconi has an ample parliamentary
majority, meaning that in theory there should be little threat
of the package not being approved.

However, Italy’s largest trade union, the left-wing CGIL,
has already attacked the budget and is considering strikes.

Berlusconi has a bad track record for facing down public
protest and his popularity has been dropping for months due to
coalition bickering, corruption scandals and a growing awareness
of the size of deficit cuts needed.

There is some risk that discontent over the cuts could
increase government instability, raise the chance of early
elections or even lead Berlusconi to row back on some of the
measures.

— For an analysis on the budget, click on [ID:nLDE64P055]
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FACTBOX-What’s in Italy’s austerity package