Oct. 23 (Bloomberg) -- Italy will use revenue generated by an amnesty for tax evaders who repatriate savings stashed abroad to cut other taxes, including possibly lowering a regional labor levy, Industry Minister Claudio Scajola said.

“The 5 percent tax on repatriated capital frees up resources,” Scajola said in a Bloomberg Television interview late yesterday in Rome. Finance Minister Giulio Tremonti “is evaluating a mix of possible ways to lower tax pressure in our country.”

Prime Minister Silvio Berlusconi yesterday said he was studying ways to gradually reduce or eliminate a regional labor tax known as Irap. The country’s debt, the highest in the European Union, has made it more difficult for Berlusconi to slash taxes in the past, and the EU yesterday urged member countries to get deficits back in line now that an economy recovery is underway.

Cutting or eliminating the regional labor tax would be “a very good thing,” Luca Cordero di Montezemolo, chairman of Fiat SpA, said yesterday in Rome. “I hope it can be done.”

The government’s goal is to repatriate 100 billion euros ($150 billion) with the tax shield, which would generate a one- off increase in tax revenue of 5 billion euros. The temporary tax amnesty ends this year.

The windfall will be used to fund lower taxes for “three or four years,” Scajola said. An increase in growth rates will fund the cuts after that, he said.

The government sees debt rising to 115 percent of gross domestic product 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: October 23, 2009 03:40 EDT