Italy coalition fights for fix as housing tax showdown nears
By James Mackenzie, ReutersROME--Italy's fractious ruling coalition struggled on Tuesday to bridge differences over a housing tax that threatens to create a new crisis for a government already severely strained by the legal turmoil surrounding Silvio Berlusconi.
August 28, 2013, 12:01 am TWN
With twitchy financial markets nervous about the prospect of fresh political instability in Italy, the Milan stock market fell for a second day and government borrowing costs rose ahead of a closely anticipated bond auction on Thursday.
Ministers are due to meet on Wednesday to decide what to do about the tax on main residences, which Berlusconi's center-right party insists must be scrapped if it is to continue supporting center-left premier Enrico Letta.
The housing tax has dogged Letta's unwieldy coalition of traditional rivals ever since it was formed after inconclusive elections in February left no party able to govern on its own.
Senior political leaders including Letta and President Giorgio Napolitano have warned that any threat to the left-right government's survival would risk a return to the kind of turmoil seen at the height of the euro zone debt crisis, when Italy, the bloc's third biggest economy, came close to a Greek-style meltdown.
But, despite some signs of progress including proposals to replace the tax with a new local services levy, there has been no firm agreement on where to find the 4 billion euros (US$5.35 billion) a year it would take to abolish the tax.
“This is a fundamental policy issue,” Renato Brunetta, a Berlusconi loyalist and lower house leader of his People of Freedom (PDL) party told RAI state radio.
“The fact that the government has so far failed to present a solid proposal has created a lot of doubt, it's not serious to proceed in this way,” he said.
Coming on top of mounting tensions over Berlusconi's future in parliament following his conviction for tax fraud earlier this month, the battle over the housing tax has underlined the severe constraints on Letta in trying to reverse Italy's worst postwar recession.
On Tuesday Berlusconi told PDL hardliners to stop their open threats to pull out of Letta's coalition, boosting hopes that in the end a deal will be reached to avoid an immediate crisis.
However, Letta's own center-left Democratic Party (PD) has so far rejected demands to scrap the housing tax, known as IMU, and instead proposed a partial abolition which would save most taxpayers but still hit richer Italians.
“Taking action on IMU has to be seen in a context where there are other priorities,” Deputy Economy Minister Stefano Fassina told RAI radio, saying that Italy's strained public finances did not allow an across-the-board cut.
“We have limited room and various priorities. I would intervene clearly in the case of the vast majority of Italian families which pay IMU on their primary residence without going further,” he said. “We need to find a point of balance.”
Italian Premier Enrico Letta meets with the media following a Cabinet meeting in Rome, Monday, Aug. 26. (AP)