Italian Prime Minister Silvio Berlusconi, left, seen here with Finance Minister Giulio TremontiTONY GENTILE/Reuters
The Italian government backtracked on parts of its widely criticized austerity package on Monday, scrapping a tax on high earners and scaling back cuts to local authority funding.
In a statement after seven hours of talks at Prime Minister Silvio Berlusconi's home outside Milan, the government said it would also exclude years spent at university and military service from retirement age calculations, delaying retirement for some people.
The statement contained little detail on the funding impact of the changes or how the government would make up for revenue lost from the €45.5-billion ($66-billion U.S.) austerity package now making its way through parliament which is aimed at balancing the budget by 2013.
There was also no mention of any increase in value-added tax, a measure which had been widely mooted in the media before the meeting.
The austerity package, passed in parliament this month to try to stem weeks of market turbulence that threatened to suck Italy into a Greek-style financial crisis, was agreed after heavy pressure from the European Central Bank.
But it has been criticized by groups ranging from employers' federation Confindustria to the main unions, the opposition and even significant sections of the ruling centre-right coalition itself and is certain to be amended in the coming weeks.
It has also caused serious tensions between Mr. Berlusconi and his coalition partners in the Northern League who have fiercely opposed proposals to raise the pension age.
A so-called solidarity tax on incomes over €90,000 was widely attacked for unfairly targeting salary earners in private companies whose earnings are taxed at source, while sparing many independent professionals who often under-report their real earnings.
The government had expected to raise more than €2-billion from the tax by 2013 and it will have to make up the lost revenue from other sources if it is to preserve the overall size of the austerity plan as it has promised.
However, it gave only vague indications of "new measures" affecting privately held assets intended to combat tax evasion and a reduction in tax breaks for co-operatives.
The original austerity plan also drew heavy fire from regional and local governments who said plans to cut €9.2-billion from their funding by 2013 would hit schools, roads and hospitals across the country.
The statement on Monday said the final impact on local governments would be less than originally planned and in return they would have wider powers to combat tax evasion and to use the proceeds for local spending. It gave no other details.
In addition to measures which may hit plans to cut the deficit over the coming two and a half years, the government is also proposing two constitutional reforms that will take longer to have an effect.
It wants to halve the number of parliamentarians, which currently include 630 members of the lower house and 315 elected Senators, and abolish Italy's 110 provinces. The lengthy process required means that any change could take years.