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Govt pledges more tax cuts if GDP growth beats forecast

If the Italian economy grows at a stronger pace than currently forecast, the extra revenues generated will be used for tax cuts, according to Premier Matteo Renzi’s economic blueprint, a draft of which was seen by ANSA. The economic and financial document (DEF), released on Tuesday by Renzi, is being reviewed this week by cabinet and will likely be approved on Friday. It forecasts growth in the national gross domestic product (GDP) of 0.7% this year, rising to 1.4% in 2016 and 1.5% in 2017. The draft DEF notes that these are “prudent assessments” and that actual growth may be stronger. The Italian government has been hoping that as the global economy improves, boosted by such factors as lower energy costs, the economy at home will also expand. The massive bond-buying program by the European Central Bank, known as quantitative easing, could also give Italy a lift. In fact, the DEF notes that when the blueprint is updated in September “the government does not exclude the possibility of a higher growth rate (which)… would offer greater scope to reduce the tax burden”. On Tuesday, Renzi said he hoped to cut taxes next year and emphasized tax reductions to date including an 80-euro monthly tax bonus for low-income Italians. The government’s “twin watchwords” are “fewer taxes and more jobs,” added Economy Minister Pier Carlo Padoan. The DEF emphasizes other measures that the government has taken which are aimed at boosting economic growth. Structural reforms affecting the labour market are also intended to have a long-term impact on the economy while justice reform measures could have the affect of encouraging greater foreign investment. The document notes the government intends to adopt further economic policies designed to “beef up” the economic recovery and this should lead to a “decisive recovery in employment in the next quarter”. Italy has been mired in an economic swamp since at least 2011 and last year, GDP fell by 0.4% while deflation lingers. Still, consumer and business confidence have been on the upswing amid promising early results from labour-market reforms. Renzi’s government predicts unemployment will slide to 12.3% this year from the 12.7% average in 2014. The rate should continue to drop to 11.7% in 2016, 11.2% in 2017, 10.9% in 2018 and 10.5% in 2019, according to the DEF. Meanwhile, Padoan said that he was confident the European Commission will approve the economic and financial blueprint. He noted that Italy’s 2015 budget passed European muster, in part because of the country’s work implementing structural reform. “Europe has said we passed their tests and they’ll keep doing so because we respect the rules,” Padoan told State broadcaster RAI Wednesday. In February, the European Commission approved the government’s 2015 budget after a lengthy delay, and expressed concerns about a lack of debt-reduction measures.

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