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Business

Italy approves austerity-easing budget

Despite risks of breaking EU fiscal rules, the Italian parliament has passed the nation's budget for 2016 offering tax breaks for companies and households, thus raising the government's previous deficit targets.

The upper house of the parliament in Rome on Tuesday gave its green light to Prime Minister Matteo Renzi's 2016 budget that eases deficit and debt reduction goals previously agreed with the European Commission. The Senate approved the so-called Stability Law with a 162-125 vote, after the measure had passed the lower house on Sunday.

Measures in the budget law include the scrapping of an unpopular housing tax, a pay bonus for police forces engaged in anti-terrorism duties, and a 500-euro (around $544) voucher for 18-year-olds to be spent on books or cultural activities.

It also eliminates levies on agricultural and industrial equipment, offers tax breaks to companies that invest in machinery and equipment, and reduces the television license fee. The government argues the measures are needed to bolster economic growth.

The abolition of real estate tax on primary residences is estimated to cost the government about 3.5 billion euros ($3.83 billion).

The additional spending is projected to bring Italy's public deficit to 2.4 percent of gross domestic product (GDP), well below the EU limit of 3 percent. However, it is higher than the target Renzi's administration had initially pledged to the European Commission.

Debt and deficit woes

Despite complying with EU deficit limits, Italy is still at risk of censure from Brussels because its public debt, at over 130 percent of GDP, is more than twice the allowed threshold of 60 percent.

In November, the European Commission issued a preliminary assessment warning Rome that it was at "risk of non-compliance" with 2016 eurozone budget discipline requirements. The EU executive is due to review that judgment in the coming months.

Brussels' main concern is that Italy's structural deficit, adjusted for economic growth fluctuations, is set to rise next year by at least 0.4 percent of GDP, rather than decline by 0.5 percent as EU rules prescribe.

But PM Renzi, who has become increasingly vocal against what he views as German-imposed austerity policies, argues that Italy needs to focus on consolidating a still-fragile economic recovery.

He says the deficit will remain inside 3 percent of GDP and that the public debt will fall next year for the first time in eight years, although in recent years forecasts of a fall in debt have repeatedly proved wrong.

sri/dk (Reuters, dpa, AFP)