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Berlusconi reverse as he rules out tax cuts

January 13, 2010

by Guy Dinmore in Rome

Published: January 13 2010

Silvio Berlusconi, Italy’s centre-right prime minister, on Wednesday ruled out tax cuts, just days after he had signalled in an newspaper interview that his government wanted to reduce higher levels of income tax.

Giving the first press conference to set out his agenda since leaving hospital following an assault by a mentally ill man, Mr Berlusconi renewed his criticism of the judiciary, saying its attacks on him were “comparable… if not worse” than the one in Milan that left him with a broken nose a month ago.

The comment riled Italy’s national association of magistrates, which condemned Mr Berlusconi’s ”verbal aggression” in comparing the ”sensitive” work of the judiciary with the disturbed man who hit him with a miniature replica of Milan’s cathedral.

The cost of financing Italy’s large public debt meant that tax cuts were “out of the question”, Mr Berlusconi said. Analysts saw his remarks as a vindication for Giulio Tremonti, finance minister, who has launched studies to reform the tax system but is opposed to cuts that would increase the budget deficit.

Last weekend, Mr Berlusconi indicated in an interview with La Repubblica, a centre-left daily, that his government would revive a plan he first considered in the 1990s to eliminate the highest brackets of income tax. His remarks were interpreted in the context of campaigning ahead of important regional elections in March.

His change of mind on Wednesday, including a clear rejection of a campaign based on promises of tax cuts, followed the release of statistics confirming the anaemic state of Italy’s economic recovery after two years of recession.

Industrial production figures for November, showing an increase of only 0.2 per cent over October, were seen by economists as a warning that GDP might not have registered any growth in the final quarter of last year after a rise of 0.6 per cent in the third quarter.

Fabio Pammolli, head of the Cerm economic research institute, said Mr Berlusconi’s statement on taxes was “the only realistic answer he could give”. A promise of tax cuts, he said, would be “highly risky for the markets” in refinancing Italy’s public debt and would undermine Mr Tremonti’s fiscal rigour, which had been welcomed by the European Commission.

Italy’s public debt is forecast to rise this year to 117 per cent of GDP, second only to Greece in the European Union.

Mr Berlusconi, 73, devoted most of his remarks after a cabinet meeting to law and order issues and reform of the judiciary. The cabinet approved a decree calling a state of emergency in the prison system with plans to spend €600m on building 47 prison wings with more than 21,000 places for inmates.

Confindustria, the business lobby, welcomed the prison expansion plan but expressed concern that normal tender procedures would be bypassed in the cabinet’s use of emergency powers.

Italy has a relatively small prison population compared with similar-sized countries such as France and the UK and has often been compelled to deal with overcrowding by issuing amnesties. Mr Berlusconi ruled out more amnesties and also pledged tougher action against organised crime.

He also confirmed the government would press ahead with legislation being debated in parliament that would put a cap on the length of certain trials. Opposition politicians are trying to amend the proposal, denouncing it as a brazen attempt to halt two cases against the billionaire prime minister alleging corruption and tax fraud. The ruling centre-right coalition has a large majority in both houses and a vote is expected next week.

However, to the surprise of commentators on Wednesday, the cabinet decided not to issue a decree that would have frozen the two trials involving Mr Berlusconi. “There is no decree,” the prime minister said.

Italy’s constitutional court in October delivered a setback to Mr Berlusconi when it overturned legislation giving him immunity from prosecution while in office.

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