New Italian government vows low tax revolution

Tim Wallace
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ITALY’S new government was sworn in yesterday after two months of parliamentary deadlock, but the ceremony was marred by a gunman injuring two policeman outside the Prime Minister’s office.

New leader Enrico Letta’s appointment last week gave markets a boost and saw Italian government 10-year borrowing costs dip below four per cent for the first time in more than two years.

His centre left Democratic Party has nine ministers in coalition with five from Silvio Berlusconi’s centre-right People of Freedom party, three Mario Monti’s centrist Civic Choice and four other technocrats.

The arrangement is expected to have the same positive effect on markets this week, bolstering hopes the country can avoid another worsening of the Eurozone’s protracted economic crisis.

Letta has picked former central bank deputy governor Fabrizio Saccomanni as economy minister, taking on a tough role as the country tries to continue some of the economic reforms promoted by previous leader Mario Monti.

Saccomanni has pledged to keep freeing up the economy with the aim of improving growth and driving down government borrowing costs further.

He told Sunday newspaper Repubblica he wants to “restructure the state budget” by cutting unproductive public spending to cut taxes, as well as supporting firms and low-earners.

Economist Enrico Giovanni has been appointed as labour and welfare minister, after running official statistics agency Istat. His first big challenge will be to clean up the aftermath of a pension reform which left some with little to no cover after they took early retirement.

Economists were upbeat about the new government’s chances of success, at least in the short-run.

“With its three per cent deficit-to-GDP ratio despite a deep recession in 2012, Italy does not need and will not get any further austerity. With less political uncertainty, the economy can spring back to life later this year,” said Berenberg Bank’s Holger Schmieding.

“Of course, Letta faces serious challenges, for instance how to deal with the Berlusconi demand of repaying Monti’s unpopular €8bn real estate tax. But under the stern guidance of super-President Giorgio Napolitano, the chances are that Letta will get around this hurdle as well.”

The Italian parliament is expected to vote on the formation of the new government today.

Silvio Berlusconi’s party has vowed only to back it if Prime Minister Letta promises to follow its key policy of scrapping an unpopular housing tax imposed last year and paying back some of the revenues it has so far raised.

New Prime Minister Letta comes from a political family, with his uncle Gianni Letta working for his rival ex-PM Silvio Berlusconi. He came to lead the party only this month after PD leader Pier Luigi Bersani resigned on failing to form a coalition. Letta has held positions in previous centre-left governments, beginning as minister for European affairs in 1998, aged just 32.

Economy minister Fabrizio Saccomanni has impeccable pedigree as a former deputy central bank governor in Italy. He also heads up the Insurance Supervisory Authority (IVASS) and is a member of the board of directors for the Bank of International Settlements. He has worked as an economist in a range of government departments and the IMF over the past 40 years. He was central to the negotiations create the euro and worked on the changeover process.