Tax hikes & buget blues

The new government took its first step towards straightening Italys public accounts on Thursday, forcing several regions to put up taxes to cover a budget hole created by excessive health spending. The decision, taken during the centre-left governments first full-fledged cabi-net meeting, affects six Italian regions out of 20. The regions – Liguria in the north, Lazio, Abruzzo and Molise in the centre and Campania and Sicily in the south – were told to raise income taxes and a regional business tax called IRAP because they had breached their health care budget limits.Economy Minister Tommaso Padoa-Schioppa stressed at a press conference after the cabinet meeting that the tax hikes were automatic under the terms of the 2006 budget approved by the previous government. He also said a tighter control would be kept on public spending, with constant monitoring by the chief state accountants office. The minister said that all spending caps contained in the 2006 budget would be rigorously applied, including public administration hiring limits and reductions in ministry consultancy, advertising and chauffeur spending.Curbing Italys rising deficit and public debt are the two most urgent tasks facing Premier Romano Prodi, who won the narrowest of victo-ries against his predecessor Silvio Berlusconi in the April general election. Italys budget deficit has breached the 3 percent limit for the past three years, rising to 4.1 percent in 2005 – the highest level since 1996. It is seen as hitting some 5 percent of GDP this year unless budget adjustments are made. The previous government predicted a deficit of 3.8 percent this year and promised the European Commission that it would be slashed to 2.8 percent by the end of 2007. Brussels has ruled out an extension on that deadline despite the worse-than-expected accounts situation.