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Business

Italy surprises with income tax cut

The Italian Prime Minister is intending to give a better deal to those earning little in his country. He's announced an income tax cut to support households despite pressures to consolidate the national budget.

Low earners in Italy will be able to enjoy an income tax cut, Prime Minister Mario Monti announced on Wednesday after a marathon cabinet meeting in Rome.

He said the rate would drop to 22 percent from 23 percent of earnings at the moment for people earning less than 15,000 euros ($19,335) per year, and to 26 from 27 percent for those earning between 15,001 and 28,000 euros. Higher income bands would remain unchanged, Monti added.

"Today we can see that budget discipline pays and makes sense as we can allow ourselves some moderate relief," Monti told reporters after the cabinet meeting.

Ineffective deal?

The tax cut is expected to cost 5.0 billion euros and will still have to be approved by parliament. The move was welcomed by the moderate CSIL labor union which spoke of an "important signal."

However, the cabinet also adopted a variety of further savings measures and a 1.0-percent rise in value-added tax from 21 to 22 percent.

Italy's consumer association Codacons said the government was pulling the wool over people's eyes by presenting the income tax cut as a relief to low earners in the country. "The budgetary package presented by Monti contains more tax hikes than cuts," it commented, calculating that the yearly bills of average families would increase by 273 euros as a result of the savings measures announced.

hg/msh (Reuters, dpa)