July 6 (Bloomberg) -- Prime Minister Mario Monti’s cabinet was meeting in Rome to approve more than 4.2 billion euros ($5.2 billion) of spending cuts to stave off a sales-tax increase that may further sap demand in the recession-hit economy.
The Cabinet meeting to approve the plan began in Rome after 6 p.m. and was still going after midnight.
The plan may cut transfers to regional governments, limit the scope of the public health-care system, force central and local administration to scale back spending and reduce the size of the civil service, the heads of the main Italian regions said July 3 after talks with Monti on the plan.
The government is planning to use the savings to avoid a planned increase in the value-added tax of 2 percentage points slated for October while maintaining its goal of trimming the deficit to 1.7 percent of gross domestic product this year. The savings will also help Italy fund relief and reconstruction in the northern region of Emilia Romagna that was hit by two fatal earthquakes in May and aid thousands of retirees who were left without a pension after the retirement age was raised in December.
Italy is mired in its fourth recession since 2001 and the economy is set to contract 2.4 percent this year, employers’ lobby Confindustria forecast June 28.
The plan may be passed as a decree law, which means that it will take effect immediately, before formal parliamentary approval. Italy’s two biggest workers union have already threatened to strike over the cuts.