Italian govt. defends budget blueprint

Italian center-left Premier Romano Prodi and Economy Minister Tommaso Padoa Schioppa defended their budget plans on Monday after a weekend of criticism from industrialists and even some center-left mayors.

Speaking at a conference of entrepreneurs in Bologna, Prodi expressed determination to press ahead with the 34-bn-euro budget package he and Padoa Schioppa have devised to bring the budget deficit below 3 percent of GDP.

Alluding to a public debt mountain which was the third largest in the world and a growth rate among the lowest in Europe in recent years, Prodi repeated that Italy was in dire straits in terms of competitiveness and public accounts.

European Commissioner for Monetary Affairs Joaquin Almunia said Italy should achieve the target of a budget deficit below 3 percent if the government's draft budget was fully implemented.

One of the key measures in the 2007 budget is a 5.5-bn-euro cut in the taxes and contributions that companies pay on behalf of employees. The measure is designed to stoke growth.

"Everything's riding on the cut in payroll taxes. I think this is the instrument through which business will understand that the country is heading in a new direction now".

But the Italian employers' association Confindustria this weekend attacked the budget blueprint, which has just begun its long journey through parliament.

Confindustria Chairman Luca Cordero di Montezemolo, while praising the payroll tax measure, said the rest of the budget contained too few cuts in public spending and little in the way of reforms.

He also repeated the business world's bitterness over a plan to channel some of employees' severance pay (TFR) into the national pension fund, thus depriving companies of considerable funds.

Padoa Schioppa said on Monday that smaller businesses may be excluded from the TFR transfer so as not to put undue strain on their finances.

Meanwhile, opposition to the budget has also come from the center-left mayors of at least three big Italian cities. They are protesting over cuts to the funds they receive from the central state.

Representatives of municipal councils are scheduled to meet Prodi in Rome on Tuesday to discuss the budget, which gives them the option of rasing local taxes to cover their costs.

Padoa Schioppa said that the country's public finances were " out of equilibrium" after the five years of Silvio Berlusconi's center-right government. The situation was "difficult to put right ", he added.

Padoa Schioppa, who on Saturday described his budget plan as an "extraordinary result", told MPs that it involved a "structural" correction of accounts that would become more evident as time passed.

Giving details of the budget, he said that the 34.7 billion euros it allocated came from a reorganization of the public administration, lower transfers to local administrations, health service cuts, adjustments in the pension system and tax revenue.

Some 15 billion of the money went on reducing state debt, and 19.5 billion on measures aimed at "development and social support".

Source: Xinhua