2007 Budget To Be Changed (Already!!)

Well the FT this morning reprorts that Prodi is now 'vowing' to change the budget:

Italy’s centre-left government promised to make changes to its 2007 budget after coming under intense criticism from business leaders at the weekend for raising taxes and failing to introduce economic reforms.

“It’s clear that we will make technical corrections and adjustments, but we absolutely won’t renounce the three objectives of fairness, restoring the health of the public finances and development,” said Romano Prodi, prime minister.

Much of the 'intense criticism' has centred around the proposal which would have compelled companies to transfer about €5bn in funds, held in reserve for employees’ severance pay, to the state pension system which was covered in my post yesterday. As the FT notes:

This has caused uproar among the several million Italians who run small companies with fewer than 10 employees. They fear it would prevent them from meeting their obligations on severance pay and that banks might refuse to help them out with loans.

While denying that the pension funds transfer was a major issue, Mr Padoa-Schioppa acknowledged the objections of small companies and said: “I recognise that for them it’s a problem and something will have to be done.”

The government might in any case have needed to redesign this proposal, because the European Union’s accounting rules would not necessarily let Italy count such transferred pension contributions as extra government revenues.

Well, now we may well get a more serious and realistic version of the budget up and on the table, since in this case at least, all may be well that ends well, always assuming the Padoa-Scioppa is a man of his word, and not like that other European leader who was lying in the morning, in the afternoon and in the evening.

Mr Padoa-Schioppa was adamant any adjustments to the budget, which MPs must approve, would not affect its goal of cutting Italy’s budget deficit to 2.8 per cent.