Renzi rings changes for Italy with €10bn tax cuts

New Prime Minister Matteo Renzi on Wednesday laid out his plan to transform Italy with a package of reforms headlined by a ten-billion-euro tax cut.

Renzi rings changes for Italy with €10bn tax cuts
Prime Minister Matteo Renzi. Photo: Andreas Solaro/AFP

Hours after the lower house of parliament approved a new electoral law designed to end the country's chronic political instability, Renzi announced economic measures aimed at stimulating growth while also cutting spending, shaking up the labour market and making the state pay its bills.

In an assured and confident presentation to the media, Renzi said ten million people earning less than €25,000 a year would benefit from the tax cut.

He also announced a ten percent reduction in a payroll tax paid by bigger companies, a €3.5 billion programme of investment in renovating school buildings and a new guarantee scheme to give smaller businesses easier access to credit.

In perhaps the most significant element of the package, Renzi said that €68 billion worth of bills that various state institutions have not paid to their suppliers would be cleared by July.

And in a potent symbol of his determination to trim what he regards as a bloated bureaucracy, he announced that 1,500 official cars would be auctioned off by the middle of next month.

Renzi said his measures would be partly financed by spending cuts and ruled out tax rises for wealthier citizens, with the exception of a hike in capital gains tax from which government bonds will be exempted.

"The money to put the ten billion in the pockets of Italians is there," he insisted.

The youthful new prime minister had earlier hailed the passage of the electoral reform bill with a trademark pithy Tweet.

"They've shown we can really change Italy. Politics 1-Defeatism 0," the 39-year-old wrote.

Senate to lose powers

Deputies voted 365-156 in favour of a draft law that, if approved by the upper house Senate, should ensure that elections lead to stable governments with the parliamentary power to implement their manifestos.

The law raises the thresholds for smaller parties to be represented in parliament and introduces a type of winner-takes-all mechanism which guarantees a majority of seats to any party or alliance that achieves 37 percent of the popular vote.

In the event of no party achieving that target, there will be a run off between the two best-supported ones.

Renzi also announced plans to remove another obstacle to effective government by stripping the Senate of its ability to block or delay legislation.

Renzi said he would present parliament with a draft amendment to the constitution within two weeks, under which the 315 Senators will be replaced by representatives drawn from Italy's regions.

The electoral bill sailed through the lower house after Renzi secured the backing of former Prime Minister Silvio Berlusconi, whose Forza Italia party is the main opposition to Renzi's coalition.

The backing of Berlusconi is seen as crucial if the law is to get through the Senate in what many analysts believe will be the test by which Renzi's government stands or falls.

"If we don't succeed in this constitutional reform, I will consider not only my time in government, but my political career to be over," Renzi said.

Italy's youngest ever premier, Renzi came to power last month after staging a coup within his centre-left Democratic Party (PD) against former leader Enrico Letta, who he accused of reproducing the mistakes of Italy's recent past.

As well as stimulus measures, his economic proposals contains steps that will make it easier for employers to hire and fire in a country notorious for its restrictive employment contracts.

The new premier leads a centre-left party which emerged from the disintegration of Italy's once-powerful Communist Party. But Renzi, a former Catholic boy scout, does not belong to that political tradition.

He has often voiced admiration for the way former British premier Tony Blair repositioned his centre-left Labour Party.

Under Blair, Labour dropped its historical commitment to state ownership of industry in favour of free-market, pro-business policies whilst maintaining high levels of state spending in areas such as education and health.

Renzi's capacity to adopt a similar approach is limited by Italy's huge public debt, which currently stands at the equivalent of 130 percent of total economic output, and by its obligation to keep its budget deficit under control as a member of the eurozone.

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