Following the recent deterioration of sovereign debt markets, in Italy and globally, the Italian Government has decided to promptly intervene to strengthen the budgetary and liberalization measures taken last July, in order to accelerate the adjustment of public finances and to enhance potential growth.
In particular, on the fiscal side, the new package will bring public deficit down to 1.4% of GDP in 2012 and to balance budget in 2013. This will be achieved:
- on the expenditure side, by further cuts in central and local current expenditure in goods and services; by further reductions in public employment; and by substantial savings deriving from an in depth review of entitlements and tax expenditures;
- on the revenue side, the withholding tax on financial income has been uniformed to 20% (with the exception of public debt instruments); a contribution for the next three years in the form of a levy of 5% has been introduced for incomes above €90.000 and of 10% for those above €150.000 (in both cases capped in a way that virtual marginal tax rate will not exceed 48%). Further measures have been introduced to fight tax evasion, including limiting cash transactions to amounts below €2500 and harsher penalties in case of payment of professional services without proper invoicing.
To enhance growth, substantial measures have been introduced to liberalize professional activities and to promote competitions in local public services, by limiting the direct ownership of public utilities by local authorities, by promoting and incentivizing the privatization of publicly owned companies in these sectors.
The structure of central and local government and administration has been considerably simplified and its cost reduced. In particular, the compensation of members of Parliament has been cut between 10% and 20%; the number of members of regional and local Councils and Governments have been drastically reduced; 37 Provinces have been eliminated; small municipalities, with less the 1000 inhabitants, have been required to merge with neighbouring ones, and those up to 5000 inhabitants are required to reorganize their service activities together with other similar and close-by municipalities, in order to achieve substantially higher efficiency through economies of scale.