Italy’s New PM Pledges To Repay Overdue Debt Despite Introducing Massive Tax Cuts

March 12, 2014Italyby EW News Desk Team

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Italy’s new Prime Minister Matteo Renzi has promised to pay down some 68 billion euros ($95 billion) in overdue debts the state owes to private companies by July, even as the government recently announced some 10 billion euros in personal tax cuts and a further 2.4 billion euros in business-tax cuts.

Renzi said that the tax cuts would benefit about 10 million lower and middle-income workers, giving them an extra 80 euros a month in additional net pay on average.

Making clear that his government’s focus was on job creation and growth, rather than austerity, Renzi added that he would further rewrite labour laws and introduce business tax breaks to stimulate hiring.

"There has never been a reform course so meaty and significant," Renzi told reporters at a news conference in Rome, as cited by Deutsche Welle. "This is one of the biggest fiscal reforms we can imagine."

The prime minister said that the tax cuts would be financed through cuts to government spending. A recent reduction in Rome's borrowing costs would also free up money and allow the government to borrow more, thus bolstering its means to support his plan.

However, although Renzi pledged to “respect our European commitments” for both their budget deficit and debt repayment, he failed to elaborate exactly how he would repay the 68 billion euros in July.

According to the BBC, Economy Minister Pier Carlo Padoan later admitted that Italy would have to obtain permission from European authorities if its plan to pay off these debts by breaching EU borrowing limits.

"I won't disguise the fact that we don't have a very clear idea of how much the debt arrears which can actually be mobilised amounts to," Padoan said.

Related: Matteo Renzi: Italy’s New Hope?

Related: Italy Ponders Radical ‘Job Sharing’ Scheme To Improve Youth Unemployment

Related: Europe’s Weakest Link: Why Italy Could Reignite The European Crisis

Italy's deficit is just within the EU's limit of 3 percent of gross domestic product but its 2.07 trillion euro debt is the highest in the euro zone, as a percentage of GDP, after Greece. It is set to reach 133.7 percent of GDP this year from 132.6 percent in 2013, according to the European Commission.

Last week, EU Commissioner for Economic Affairs Olli Rehn put Italy on a watch list of three countries - with Slovenia and Croatia - citing high public debt and weak competitiveness.

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