April 24, 2017 / 7:35 PM / 3 months ago

Italy hikes taxes to rein in 2017 budget deficit

3 Min Read

FILE PHOTO: Milan's business district skyline is seen from Duomo's Cathedral downtown Milan, Italy , January 13, 2016.Stefano Rellandini

ROME (Reuters) - The Italian government said on Monday it was raising taxes on tobacco and gambling and cracking down on evasion of value added tax to help it reduce this year's budget deficit, as demanded by the European Union.

The emergency deficit cuts, worth 3.4 billion euros ($3.61 billion), or 0.2 percent of gross domestic product, were approved by the cabinet on April 11, but only on Monday did the government spell out the measures adopted.

The delay reflected disagreements over how to find the money within the fractious left-right coalition backing Prime Minister Paolo Gentiloni.

The decree was never presented to the media but was published in the official gazette on Monday. The measures take immediate effect and will now go before parliament where they must be approved within 60 days.

Italy has the highest public debt in the euro zone after Greece, and has been in a tussle with the European Commission since it presented a 2017 budget last September which softened previous commitments on deficit and debt reduction.

As a result of the emergency cuts, the deficit target for this year was lowered to 2.1 percent of GDP from 2.3 percent, while next year's was confirmed at 1.2 percent.

The bulk of the extra savings for this year come from a change in rules governing payment of value added tax, which the government will reduce evasion.

All public bodies will from now on pay value added tax directly to the Treasury when they purchase goods and services from suppliers, instead of paying it to the supplier.

This means the Treasury is more certain to receive the VAT and also gets it much faster than it would if it had to wait for the tax return of the company involved.

The mini-budget also hikes taxes on lottery winnings and slot machines, and raises the levy on housing rents.

The Treasury's new economic forecasts, approved with the mini-budget of April 11, see the public debt, which hit a record high of 132.6 percent of GDP in 2016, virtually stable this year at 132.5 percent before easing to 131.0 percent in 2018.

The government marginally raised this year's forecast for economic growth to 1.1 percent from 1.0 percent previously, but lowered next year's outlook to 1.0 percent from 1.3 percent and projected the same 1.0 percent rate in 2019.

Italy, consistently among the most sluggish economies in the euro zone, grew by 0.9 percent last year and 0.8 percent in 2015.

reporting by Gavin Jones; editing by Andrew Roche

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