Italy union head warns against pension cuts

The head of one of Italy's largest unions warned the government not to cut pensions as part of budget reduction plans until it had implemented other measures including a wealth tax.

In an interview with the daily La Stampa on Tuesday Raffaele Bonanni, head of the moderate CISL union, said tax reform and cuts to the notoriously complicated and expensive Italian government system should take precedence over pension reforms.

Italy has made broad promises to take further steps to reduce borrowing and its budget deficit, but for now there are few specifics beyond a broad public discussion of options including changes to pensions.

"We say that if you're talking about consolidating the pension system, we're fine with that. But there are other things to do first," he said.

"There's no other country in Europe or the world with such a dense and complicated institutional system," he said, pointing to a web of thousands of local administrations which he called a "Soviet leftover" and a "dumping ground for failed politicians."

He said VAT could go up as long as income tax was reduced and called for an increase in the tax rate on financial income from 12.5 percent to 20 percent. "And then obviously, I'm for a wealth tax, though without touching principal residences."

The comments from Bonanni point to the complicated path the government will have to tread to implement its newly revised objective of bringing the budget into balance by 2013, a year ahead of its original plan.

Any cuts to pensions in particular risk creating strong resistance in a country where almost a quarter of the population is expected to be over 65 years of age by 2025.

Reforms by successive governments have left Italy's pension system in relatively good shape compared with many of its peers, with pension expenditure relative to gross domestic product projected to fall in coming years as retirement ages go up.

However additional changes are one of the options that have been raised, including increases in retirement ages for women in the private sector and limits to rules allowing workers to retire before the pensionable age if they have worked for a fixed number of years.

"If they do the things we have said -- the political system, VAT, financial income, a wealth tax -- they'll raise a lot of money and there won't be any need to touch pensions. And you'll get the economy moving," Bonanni said.

[Source: Reuters, Rome, 09Aug11]

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