MNI SOURCES: Italy Coalition Tussles Over Rival Tax Plans

By Silvia Marchetti

     ROME(MNI) - Italy's governing coalition partners are working on rival

fiscal reforms, with the 5-Stars Movement prepared to ask for EU flexibility on

E4 billion in labour levy cuts, while the League wants a more expensive overhaul

of the public revenue system based around a flat tax, details of which remain

unclear, government sources told MNI.

     According to Treasury sources, it is still too soon to know how the tax

feud between the 5-Stars and the League will play out, amid fraying relations

between the parties. The nature of the final tax plans, which will be part of

the budget law, will depend on negotiations running to the end of September,

although both parties say they remain confident of a deal.

     Under the 5-Stars plan, businesses which create new permanent jobs will no

longer pay an unemployment tax amounting to 1.6% of each employee's salary.

     "We are confident Brussels will allow us to deduct tax cuts in favour of

firms from deficit calculations, because our plan supports businesses which hire

new fixed-term employees and thereby reduce the net cost of social security,"

said a 5-Stars source. "It contributes to the Social Europe employment goals

lately laid out by the European Commission."

     The official argued that his party's plan is more feasible than the

League's "ambitious yet unclear flat tax introduction, for which we have yet to

see a definitive document."

     The League, which won Italy's European parliamentary elections, securing

more votes than its ruling partner, believes it has the right to call the shots

on tax cuts. But the party is watering down previous pledges by League leader

and Deputy Prime Minister Matteo Salvini for a 15% flat tax, which was

originally to have cost at least E10 billion, and is instead talking of broader

if less radical changes to the tax system.

     " E4 billion is way too little," said a League source working on the tax

cut plan, adding that the party wants to simplify and reduce taxation across the

board, cutting the costs of bureaucracy in concert with a crackdown on tax

dodgers. "Unpaid taxes are what we really need to fight."

     So far the League has presented at least four different flat tax plans,

noted another 5-Stars source, without ever specifying how such measure would

work and be funded.

     While the government's recently-approved fiscal document, set to be the

pillar of the budget law in October, mentions a reduction in taxation, there is

no specific reference to the cost of any eventual flat tax.

     Italy's government is in a difficult fiscal position which leaves little

room for tax cuts. Rome has just averted an excessive deficit procedure by

pledging to cut this year's fiscal deficit from 2.4% of gross domestic product

to 2.1%, requiring roughly E3 billion in savings. Next year, it must also find

E23 billion to avoid an automatic rise in value-added tax.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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