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By Silvia Marchetti
     ROME(MNI) - The Italian government is prepared to boost property taxes to
avoid a E23 billion automatic increase in value-added tax next year, sources
told MNI, with officials hoping regions will take the political flak for the
move but also considering an extension of the levy to primary residencies if
necessary.
     Two regions, led by governors from the governing coalition's League party,
have signed deals with the central government granting them more autonomy in
setting taxes, and several more are negotiating. This has prompted hopes in Rome
that rises in property levies, a share of which is handed over by the local
administrations to the government, will allow it to avoid the boost in VAT
stipulated in "safeguard clauses" agreed with the EU in talks averting an
Excessive Deficit Procedure last year.
     As a last resort, the government is also secretly debating whether it could
re-introduce a controversial tax on all primary residences, scrapped in 2015 by
the centre-left administration of Matteo Renzi, sources said. Currently property
taxes are levied only on second homes, businesses and rural land.
     The coalition's far-right League and populist Five-Stars Movement have both
previously publicly ruled out a move to property taxes on first homes. But their
comments on the matter have become more ambiguous ahead of the European
parliamentary elections, even if sources said that such a measure, which would
raise roughly E25 billion per year, would only be taken if there were no other
way of avoiding a hike in VAT.
     --DOCUMENT DUE BY OCTOBER
     "We're starting to analyse the picture. It's still a work in progress, but
it is likely that there will be some changes to the current property taxation
scheme nationwide, which will be better defined and set out in the next budget
document due in September-October containing our key policy measures," said an
official with ties to the League.
     "Decentralisation is key to greater territorial efficiency, we need to move
forward with this goal, which is part of the government's Contract for Change,
and grant more autonomy to local bodies," said the League source.
     The International Monetary Fund recently called on Italy to re-introduce a
tax on primary residences as the only means to avoid higher VAT while keeping
deficit under control. The coalition has pledged to cut taxes and avoid the
mandatory VAT spike.
     "These are thorny issues which need a detailed analysis of the property
market outlook before any decision can be taken, so we have all summer to look
into possible adjustments to taxation which, in any case, would be gradual and
light," said a Five-Stars Movement source, adding that potential increases would
be "selective" and "would not weigh on small businesses and low-earning
families."
     In its talks with the EU, the government committed to raising VAT by around
E23 billion in 2020 and by almost E29 billion in 2021 in the absence of
alternative measures. Otherwise, the deficit would climb to 3.5%, placing Italy
in breach of EU rules.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
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