Italian prime minister Silvio Berlusconi announced a painful mix of tax hikes and spending cuts today to meet European Central Bank demands for action on shoring up Italy's strained public finances.
After days of criticism for a lack of clarity over how it intended to meet an ECB-imposed target of balancing the budget by 2013, Berlusconi and Economy Minister Giulio Tremonti delivered a harsh dose of austerity for Italy's fragile economy.
"We are personally very pained to have to adopt these measures," Mr Berlusconi told reporters after the cabinet had approved the plan.
The package, adopted by emergency decree, imposes austerity measures worth €20 billion in 2012 and a further €25.5 billion the following year through a mixture of public spending cuts and higher taxes, Mr Berlusconi said.
It must now be approved by parliament within 60 days.
The extent of the cuts underlines how far the government has been pushed since markets turned on Italy last month, dragging it close to a Greek-style emergency that would overwhelm the euro zone's bailout mechanisms.
The budget deficit will fall to 1.4 per cent of gross domestic product in 2012 from 3.8 per cent this year, and be eliminated in 2013, Mr Tremonti said, adding that these targets were "prudent".
The package imposes a 5 per cent extra tax on income above €90,000 and 10 per cent more tax on income above €150,000, as well as increasing the tax rate on financial income to 20 per cent from a current level of 12.5 per cent.
It also brings forward measures to raise the retirement age for women in the private sector, originally programmed to begin in 2020 but which will now start in 2016.
Additional measures include a rule ensuring that non-religious public holidays, such as the June 2nd anniversary of the founding of the Italian Republic, are celebrated on a Sunday to increase the number of working days in a year.
Reuters