World Economy

Italy Tax-cutting Budget Approved

Italy Tax-cutting Budget ApprovedItaly Tax-cutting Budget Approved

Italy’s parliament has definitively approved Prime Minister Matteo Renzi’s tax-cutting 2015 budget which aims to pull the economy out of recession while keeping the fiscal deficit inside the European Union limits.

The lower house Chamber of Deputies approved the budget by 307 votes to 116 late on Monday night after 15 members of the anti-establishment 5-Star Movement, waving placards with anti-government slogans, were expelled from the chamber for shouting and occupying the benches reserved for the government.

The budget includes a hand-out for low earners of up to 80 euro ($98) per month, worth almost 10 billion euro, and a cut in labor taxes for businesses. It aims to lower the deficit to 2.6 percent of gross domestic product, below the EU’s 3 percent ceiling and down from this year’s 3.0 percent target.

However the European Commission says the package does not do enough to curb Italy’s public debt of more than 130 percent of GDP, the highest in the eurozone after Greece.

Renzi has already been forced to ditch some tax cuts in his original budget draft to meet Commission demands that Italy do more to reduce its “structural” fiscal deficit, which is adjusted for swings in the business cycle.

Further belt-tightening measures may yet be needed. The Commission has said Italy, France and Belgium risk breaching its rules on running sound public finances and it will issue a final verdict on the budgets of all three countries in March.

A Commission technical document seen by Reuters last month said Italy needed new deficit cuts of up to 4.8 billion euro because extra measures proposed by Renzi, such as cracking down on tax evasion, do not seem effective.

  Foreign Takeover

The Bank of Italy would not oppose a foreign takeover of troubled domestic bank Banca Monte dei Paschi di Siena, a senior central bank official said on Tuesday.

Bank of Italy Deputy Director General Fabio Panetta said past experience showed that foreign takeovers of Italian banks had been successful.

“Any reservations on the nationality of groups that could be interested in a merger with Monte Paschi would be anachronistic and counterproductive,” he said.

Monte Paschi is set to tap investors for up to $3 billion (2.5 billion euro) next year in its fourth cash call since 2008 as it tries to fill a capital hole unveiled by a health check of European lenders.

The cash call is seen as a stepping stone towards finding a buyer for the world’s oldest bank still in business.

French bank BNP Paribas bought Italy’s Banca Nazionale del Lavoro in 2006, a year after Bank of Italy Governor Antonio Fazio lost his job over phone tap transcripts that raised allegations he had favored domestic bidders against foreign players.