Italy government

Tensions between Italian government escalate over tax reform

A general view of the Italian Parliament as Prime Minister Mario Draghi addresses MPs on April 26, 2021 at Rome’s Montecitorio Palace with plans on how to spend EU recovery funds. Alberto Pizzoli/Pool via REUTERS

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ROME, Oct 5 (Reuters) – Divisions within the Italian government deepened on Tuesday when the right-wing League deserted a cabinet meeting that approved the framework of a disputed tax reform promised to the European Union.

The bill, aimed at lowering income taxes and simplifying the system, was originally promised in late July as part of Rome’s Recovery and Resilience Plan (NRRP), but was stalled by tensions in the coalition.

These erupted on Tuesday when the League, a key part of Prime Minister Mario Draghi’s government of national unity, protested that the bill could lead to an unacceptable increase in taxation and that it had no didn’t have time to examine it properly.

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The League’s decision not to attend the cabinet meeting is the clearest flaw in Draghi’s administration since its inception seven months ago.

Draghi told reporters it was “a serious move” that it was up to League leader Matteo Salvini to explain.

The main bone of contention is a planned review of property values ​​which the League says will result in higher levies for landlords.

“At the moment, raising taxes for Italians, even by a single euro, is not an option,” Salvini told a news conference.

Draghi said the government had no intention of raising taxes and stressed that the reform was at an extremely preliminary stage and ministers and parliament would have plenty of opportunities to discuss it further.

“This is a very general framework that we will have to fill in with the details,” he said, adding that overhauling Italy’s tax system would take “many years.”

Once the bill has been approved by both houses of parliament, it must be implemented within 18 months.

“Tax reform is among the key elements of the PNRR to address the country’s structural weaknesses and is an integral part of the recovery we aim to trigger with the help of EU funds,” says a government document accompanying the draft. law.

Updating the taxable value of real estate, which is often much lower than the actual market values, has been recommended to Italy by the European Commission.

The bill says real estate levies won’t change until 2026, and Draghi called the planned home value revision a “statistical exercise” in the name of transparency, which was unrelated to the taxation.

Italy also plans to align tax rates on financial investments with corporation tax in the medium term, a bill seen by Reuters showed.

The rate of tax on financial investments, excluding government bonds, is currently higher than that of corporation tax (Ires).

The government’s latest budget targets presented last month leave room for additional spending of 1.2% of national output, or more than 22 billion euros ($25.5 billion) next year.

A large part of this sum will be used to finance tax cuts as part of the tax reform, said a government source.

($1 = 0.8622 euros)

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Additional reporting by Angelo Amante; Editing by Edmund Blair

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