Italian Government Approves Austerity Measures

MILAN – Premier Mario Monti said Sunday his government of technocrats has approved a package of austerity and growth measures worth euro30 billion ($40.53 billion) to "reawaken" the Italian economy and help save the euro common currency from collapse.

The measures include immediate cuts to the costs of maintaining Italy's bulky political class as well as significant measures to fight tax evasion, Monti told a news conference following a three-hour Cabinet meeting.

As part of the political cost cuts, Monti said he would forego his salaries as premier and finance minister -- a move he said was a personal decision and not meant as an example for other ministers in the government, which was formed 2 1/2 weeks ago after Premier Silvio Berlusconi's resignation under market and political pressure.

The package also includes measures to spur growth and competition, while aiming to stamp out rampant nepotism. But it also raises the retirment age and the number of years of service to qualify for a full pension, steps strongly opposed by unions, and imposes new taxes on Italians' private wealth, including their homes, boats and luxury cars, measures that conservatives have protested.

"We gave a lot of weight to fairness, we had to distribute some of the sacrifices but we took a lot of care to distribute them in a fair way," Monti said.

Monti will outline the measures on Monday in addresses to both houses of Parliament, which must approve them. Monti said he will appeal to lawmakers' sense of responsibility.

The Berlusconi government stepped down due to its failure to get tough measures through a fractious Parliament, which remains intact, meaning fault lines could easily reopen.

"A lot depends on how well or not we explain to the citizens what we are trying to do," Monti said.

The premier, an economist who once was an EU commissioner, has been under extreme pressure to come up with speedy and credible measures that will persuade markets to stop betting against the common currency. Italian borrowing costs have spiked, which could spell disaster if Italy is unable to keep up on payments to service its enormous debt of euro1.9 trillion ($2.57 trillion), or 120 percent of its GDP.

Unlike Greece, Portugal and Ireland, which got bailouts after their borrowing rates skyrocketed, the eurozone's third-largest economy is considered to be too big to bail out. An Italian default would be disastrous for the 17-member eurozone and reverberate throughout the global economy.

Deputy Economic Minister Vittorio Grilli said the measures passed will ensure that Italy's budget will be balanced by 2013 through a 2 percent increase in value-added tax from the second half of 2012. Berlusconi's now-defunct government already raised the value-added tax from 20 percent to 21 percent as part of earlier measures.

In addition, the government adopted austerity measures worth euro20 billion and euro10 billion in measures aimed at boosting anemic Italian growth. They include pension reform, local government spending cuts, the reestablishment of a tax on a first house that was annulled by Berlusconi and new taxes on boats over 10 meters (30 feet) in length and on luxury cars, Grilli said.

At the same time, the measures will reduce the tax on the cost of employment, give fiscal breaks to companies that invest to grow their businesses and increase investments in local public transport.

Monti denied an impression that the measures mostly comprised new taxes.

"There are certainly taxes, we know that in Italy it is easier to reduce the deficit through new taxes than through cutting costs," Monti said. "But what we did, for example, in terms of rebalancing the pension goes in the right structural direction."

The government "made a particular effort to make sure that higher taxes did not affect the usual suspects," Monti said.

The premier spent the weekend briefing political parties, unions, business groups, consumer lobbies and others. Unions were particularly critical of the measures to reform the pension system, saying certain classes of workers, including those who do physical labor, shouldn't be forced to work extra years, and that women who enter the work force after raising children would have to work well into old age to meet seniority requirements.

The measures raise the pension age to 66 years for men in 2012 and for women by 2018, and also increases to 42 years and one month the years of service for a man to retire with full benefits, 41 years and one month for a woman. Labor Minister Elsa Fornero said it would be possible to retire earlier, "with a small penalty."

Fornero wiped away a tear when she said that the pension reform would require sacrifices, including a hold on inflation adjustments for larger pensions.

On the fight against tax evasion, Monti said there would be no more tax amnesties, a mechanism used frequently in the past to recover lost revenues. In addition, the measures imposed a 1.5 percent penalty on money that was repatriated in a recent scheme that allowed Italians who had concealed money abroad to repatriate it for a negligible 5 percent penalty.

The measures also limit cash transactions to payments under euro1,000 -- down from euro2,500. In Italy, paying in cash is common as a way to conceal transactions from the government and avoid paying the value-added tax.

After meeting with Monti earlier Sunday, the head of Italy's industrial lobby said that the survival of the common euro currency depends on Italy's coming up with very strong austerity and growth measures -- followed by a concerted effort at the European level so that Italian sacrifices are not in vain.

Confindustria President Emma Marcegaglia described the measures as "very heavy."

The coming days "will decided if the euro will survive or not. The first move to save the euro is in Italian hands, with a very strong measures," Marcegaglia said. The measures will be "fundamental to saving Italy and to saving the euro."