Italian PM Berlusconi says VAT hike possible

ROME: The Italian government could increase value-added tax by one percentage point if needed to fill a funding shortfall in its revised austerity package, Prime Minister Silvio Berlusconi was quoted as saying on Thursday.

"We would prefer not to touch it because we don't want to provoke any recessionary effects but if it were necessary, we could increase the 20 percent tranche by one percentage point, bringing it to 21 percent," Berlusconi was quoted as saying by the Il Tempo daily.

"That is, incidentally, absolutely in line with what happens in many other European countries," he said.

The 45.5 billion euro package, passed hastily last month to reassure panicked markets over the solidity of Italy's public finances and widely criticised since, has been the subject of intense wrangling as the government has worked on amendments.

The government has already scrapped a proposed "solidarity tax" on high earners and reduced planned cuts to local authority funding. On Wednesday, it backtracked on pension measures that would have delayed retirement for many university graduates.

The changes have left a funding shortfall estimated at anywhere between 4 and 6 billion euros but a lack of detail has made it difficult for analysts to judge whether the measures will be enough to meet the aim of balancing the budget by 2013.

A VAT hike has been widely mooted as a possibility although ministers have so far said it was not being considered.

Copyright Reuters, 2011