Italy proposes balanced-budget amendment, province-slashing bill after austerity plan OKd

ROME – Italy’s government signed off Thursday on a proposed constitutional amendment calling for a balanced budget, a day after the Senate approved an austerity plan aimed at calming financial markets and meeting European Central Bank demands.

The Cabinet also finalized a proposal to slash the duplicate government functions of provinces in a bid to cut public spending. Because both are constitutional amendments, both must be approved by a two-thirds majority in each house of Parliament.

The Cabinet signed off on the measures a day after the Senate approved a key austerity package aimed at reducing the deficit by more than €54 billion ($70 billion) over three years through budget cuts, tax hikes and changes to Italy’s costly pension system.

The European Central Bank had demanded stiff austerity measures to calm the markets that have been roiled for weeks over doubts that Italy was serious about cutting its massive debt. Italy’s deficit to GDP ratio now stands at 120 per cent, one of Europe’s highest.

ECB chief Jean-Claude Trichet acknowledged the vote Thursday, saying the measures approved were “in line with the first commitment even though there were some changes.”

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The ECB has spent billions over the last month buying up Italian government bonds to get Italy’s borrowing costs lower and help them avoid becoming the next eurozone nation to need an international bailout.

The austerity measure now heads to the lower Chamber of Deputies, where lawmakers of Berlusconi’s party said they were considering putting it to a confidence vote sometime next week.

Among other things, the measure approved Wednesday hikes the sales taxes on goods and many services from 20 per cent to 21 per cent and includes an additional income tax of 3 per cent on incomes exceeding €300,000 (nearly $450,000).

The chief economist at the OSCE, Pier Carlo Padoan said the measures were “heading in the right direction.”

Separately, Economy Minister Giulio Tremonti called Thursday for a “constructive and quick” parliamentary discussion over the proposed balanced budget amendment and predicted it would ultimately pass.

The text says Italy would “pursue” a balanced budget and contained public debt, though it allows for “exceptional events” when ordinary budget balancing measures don’t work.

There has been widespread criticism over the proposal to abolish Italy’s provinces as state entitities since they provide many of the same services as regions. On Thursday, opposition lawmaker Antonio Di Pietro predicted the proposal would languish in parliamentary committees for years.