Italy Parliament Gives 2008 Budget Final Approval

For house owners the main housing tax, ICI, will be trimmed while people in rented accommodation will get a reduction in their income tax.

Italy's Senate gave final approval to the government's 2008 budget on Friday, ending a three-month passage through parliament with three narrowly-won votes of confidence.

The budget aims to trim next year's deficit to 2.2 percent of gross domestic product from a target of 2.4 percent this year thanks to an anticipated continuation of the unexpectedly buoyant tax revenues seen over the past 18 months.

However, the net effect of the budget's measures actually increases the deficit. On present trends and without any change to current legislation, the 2008 deficit would have come in at 1.8 percent, according to government figures.

A third Senate confidence vote on amendments to the package was approved on Friday by 163 votes to 157 after similar margins of victory in two confidence votes on Thursday. Had Prime Minister Romano Prodi lost any of the votes he would have been forced to resign.

The budget, which had already passed through the lower house Chamber of Deputies, was then definitively approved in a final vote -- which was not a confidence vote -- by 162 to 153.

In the budget package unveiled by the cabinet in September, around 11 billion euros of public administration spending cuts and higher-than-targeted tax revenues were offset by welfare measures and lower housing and corporate taxes.

Revenue raising measures and spending have both been increased during the budget's passage through parliament, but Economy Minister Tommaso Padoa-Schioppa says the main public finance targets remain intact. Companies will benefit from a reduction in the main corporate tax to 27.5 percent of earnings from 33 percent while IRAP, another tax on businesses which is applied regionally, will be cut to 3.9 percent from 4.25 percent.

For house owners the main housing tax, ICI, will be trimmed while people in rented accommodation will get a reduction in their income tax.

The budget also contains numerous measures aimed at cutting the high costs of Italy's political apparatus, which is considered wasteful and is a source of strong public discontent.

The budget stipulates the next government can have no more than 12 ministers and a maximum of 60 ministers, vice ministers and undersecretaries combined. Prodi's administration has 27 ministers and around 100 members in total.

The budget also introduces collective "class action" lawsuits to Italy's legal system for the first time.