Italian Government Suspends Unpopular Property Tax Payment

The Italian Cabinet agreed today to suspend the payment of a residential property tax due in June, an unpopular levy adopted by former Prime Minister Mario Monti to help reduce the country’s budget deficit.

The administration led by Premier Enrico Letta pledged to review the tax by Aug. 31. It also approved additional funding of 1 billion euros ($1.3 billion) for workers in a temporary layoff program known as CIG.

The suspension will apply to the levy, known as IMU, on primary residences. The tax sparked a popular backlash that former Prime Minister Silvio Berlusconi used as the centerpiece of his campaign in the February national election that produced a hung parliament. Berlusconi’s party supports Letta’s government in Parliament.

The suspension of the payment may require 2 billion euros to finance, Barclays Plc economist Fabio Fois wrote in a May 7 note. Lower tax proceeds because of the collection freeze will be offset by spending cuts, Deputy Prime Minister Angelino Alfano said at a press conference in Rome today.

“The measures already approved by Parliament coupled with the ones decided today will have the effect of supporting the economy,” Finance Minister Fabrizio Saccomanni said at the press conference.

Simon O’Connor, spokesman for European Union Economic and Monetary Affairs Commissioner Olli Rehn, said the commission “welcomes the restated commitment to ensure that the agreed fiscal targets are met” by Italy.

Letta announced his plan to suspend the collection of the property tax in his first speech to Parliament on April 29. He’s inherited an economy that’s probably in its eighth quarter of contraction and he’s under strong pressure to take action to drag the country out of its downward spiral of recession and job losses.

Letta has repeatedly said his government may also postpone a planned sales tax increase in July, a measure that would cost another 2 billion euros, according to Barclays.

Today his Cabinet also approved the elimination of double salaries for lawmakers who also serve as government members.

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