ROME – Italy’s government approved $64.84 billion Friday in emergency austerity measures over two years to balance the nation’s budget by 2013 in response to demands by the European Central Bank.

The Cabinet approved the package of cuts and new taxes despite fierce resistance from local government officials, who denounced the measures as socially unjust and damaging to economic growth.

“It wasn’t easy. We’re personally pained to have taken these measures, but we are satisfied,” Premier Silvio Berlusconi told a news conference.

The measures were whipped together in response to the central bank, which demanded a balanced budget as well as reforms to promote growth.

The Cabinet approved $28.5 billion in debt reduction for 2012 and $36.3 billion for 2013.

The measures include a “solidarity” tax for high earners. Anyone with an income more than $128,205 a year will be assessed an additional 5 percent tax in each of the next two years.

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The rate will be 10 percent for incomes over $213,675.

Berlusconi’s “solidarity” tax could encourage greater tax evasion, as those who don’t draw a declared salary from an employer would be tempted to hide income through cash payments to avoid the levy.

“This government had bragged that it never put its hands in the pockets of Italians, but the world situation changed,” Berlusconi said, while insisting the emergency measures were “fair.”

A news conference by regional, provincial and city authorities boded poorly for broad acceptance for the new sacrifices.

The proposed cuts to such critical services as local transportation and welfare would have “a depressive … effect,” hurting the underclasses and inhibiting the productive north from contributing to national GDP, Roberto Formigoni, the governor of the northern Lombardy state, told reporters.

Rome passed a $99 billion austerity package last month, but the government has said the financial situation has deteriorated significantly since then and is seeking new measures.

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Under intense pressure from the European Central Bank and eurozone political leaders, the government agreed to bring forward its goal of balancing the budget to 2013 instead of 2014, and to come up with structural reforms that stimulate investment and growth.

In exchange, the ECB has been buying Italian bonds on the secondary market to hold down borrowing costs threatening to topple Italy’s notoriously high public debt.

Formigoni and other officials want to draft alternatives to the government cuts.

Formigoni said that Lombardy, one of Italy’s most economically productive regions, would see its GDP suffer — which in turn would hurt national growth.

The government is seeking to stimulate Italy’s stagnant economy, which is expected to grow only by about 1 percent this year.

And while Italy’s debt is among the highest in the eurozone — at nearly 120 percent of GDP — poor growth is a key factor hindering Italy’s ability to improve its public finances.

Italy’s Central Bank on Friday said public debt topped $2.7 trillion for the first time in June.

Parliament might reopen in August, ahead of schedule, because although government decrees become effectively immediately, they still need to be converted to law within 60 days.

 


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