July 2 (Bloomberg) -- Italy’s budget deficit surged in the first quarter to the highest in more than 10 years as the worst recession in six decades prompted a drop in tax revenue.

Italy’s deficit rose to 9.3 percent of gross domestic product in the first three months of 2009, the highest since at least 1999 for a first quarter, which tends to have the biggest shortfall of the year, the national statistics institute in Rome said today. The fourth-quarter deficit in 2008 was 2.6 percent.

Prime Minister Silvio Berlusconi said on June 29 that Italy’s deficit would surge to 5 percent of GDP, overshooting a European Union limit of 3 percent for the first time since 2006. Tax revenue this year will drop by 37 billion euros ($52 billion), he said in a news conference in Naples.

Today’s report showed that revenue from direct taxes fell 4.6 percent with indirect taxes, such as value-added tax, dropping 4.9 percent from the same period a year earlier.

Former Prime Minister Romano Prodi cut spending to ensure Italy’s deficit fell below the EU limit in 2007 for the first time since 2002. Before him, the annual deficit had widened to 4.3 percent in 2005, a 10-year high.

-- With assistance from Giovanni Salzano in Rome. Editors: Jeffrey Donovan, Andrew Davis

To contact the reporter on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net

Last Updated: July 2, 2009 05:50 EDT