Reuters: US Dollar Report: UPDATE 1-Italy to delay sales tax hike for three months

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UPDATE 1-Italy to delay sales tax hike for three months Jun 26th 2013, 11:57 Wed Jun 26, 2013 7:57am EDT * Youth hiring incentives cost 1.5 bln euros * VAT freeze costs 1 bln euros, could be extended by parliament * Package follows weeks of debate in govt coalition * Econ minister says Italy committed keeping deficit in line By Giuseppe Fonte ROME, June 26 (Reuters) - Italy delayed a planned sales-tax increase for three months and introduced tax breaks for firms that hire unemployed young people in a bid to stimulate the slumping economy, Prime Minister Enrico Letta said. The total value of the measures is about 2.5 billion euros ($3.3 billion), he said after a cabinet meeting on Wednesday. Letta has repeatedly said getting young people working is the top priority of his fragile, right-left coalition, and the package comes on the eve of a meeting of EU leaders in Brussels focused on boosting youth employment. Italy remains "fully committed" to keeping the deficit below the EU ceiling of 3 percent of GDP this year, Economy Minister Fabrizio Saccomanni said, and the prime minister said the "necessary prudence" went into financing the measures. "These are all measures that will help consumer spending in the short term" and that the government hopes they will be "a bridge to economic recovery," Saccomanni told reporters after the cabinet meeting. Italy's economy, the euro zone's third-biggest, remains mired in its longest post-war recession, which began in mid-2011, and youth unemployment tops 40 percent. Letta's fragile, right-left coalition, has been publicly debating in recent weeks how to best allocate the country's limited resources to restart growth, and the package is a clear mediation between the ruling bloc's two factions. Silvio Berlusconi's centre-right People of Freedom party has been pushing to cancel the sales tax increase and eventually cancel a hated property tax, while Letta's own Democratic Party has sought tax incentives aimed at creating jobs. The government's decree, which is immediately effective but must be approved by parliament within 60 days, pushes back the scheduled 1-percentage-point rise in the main 21-percent rate of value-added tax (VAT) to October from July. Letta said parliament could extend the temporary VAT freeze, which costs about 1 billion euros, if lawmakers can finance it without increasing the deficit. The planned VAT increase was put in place by Letta's predecessor Mario Monti at the end of 2011 as a way to underpin investor confidence in the country's public accounts during the euro zone debt crisis. EU structural funds will be used in part to finance the tax breaks for hiring unemployed 18- to 29-year-olds, and that means that the bulk of them must go to the more economically depressed south, Saccomanni said. ($1 = 0.7649 euros) Link this Share this Digg this Email Reprints

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