Nov. 11 (Bloomberg) -- Italy will only cut taxes, including a regional business levy, if it also reduces spending to make up for lost revenue, Undersecretary of Finance Giuseppe Vegas said.

“You can’t diminish taxation without cutting expenditure,” Vegas said in an interview with Bloomberg Television in Rome. “If you decrease taxation today without cutting expenditure, tomorrow you have to increase taxation even more, so it’s dangerous.”

On Oct. 22, Prime Minister Silvio Berlusconi said he’d eliminate a regional business tax, known as IRAP, which brings in $57 billion in revenue a year. Berlusconi later backed off that pledge after tensions flared with Giulio Tremonti, the finance minister. The regional tax will be gradually reduced, starting next year, Vegas said.

“It’s impossible to cancel it in the immediate future,” Vegas said. The IRAP decrease “won’t be so dramatic from a macroeconomic point of view.”

The country’s debt, the highest in the European Union, has made it difficult in the past for Berlusconi to cut taxes. Under pressure from the European Commission, Italy will start reducing its deficit by 0.5 percentage point of gross domestic product next year, Tremonti said yesterday.

The government sees debt rising to 115 percent of GDP this year, its highest level since 1997. Only the U.S. and Japan have larger debts than Italy.

To contact the reporter on this story: Steve Scherer in Rome at sscherer@bloomberg.netFlavia Rotondi in Rome at frotondi@bloomberg.net

Last Updated: November 11, 2009 02:00 EST