ROME (MktNews) - Giulio Tremonti, the man widely expected to become Italy's economics minister after the May 13 general election, told Market News International Friday that the center-right would pass no tax cuts in its 2002 budget and they were not guaranteed in the following year's budget either.
Speaking in an exclusive hour-long interview, Tremonti was keen to reassure markets and the international community of the center-right's commitment to fiscal discipline, and often appeared more cautious than center-right leader Silvio Berlusconi.
With the center-right comfortably ahead in opinion polls, Berlusconi has said that in the case of victory, the current Treasury and Finance ministries would be merged and Tremonti will head the ministry responsible for the entire economy.
Tremonti set out a "three-phase" approach to the center-right's planned economic and fiscal strategy, in which the much publicized promises of drastic cuts to income and corporate tax rates would be saved for phase three.
This third phase would kick in after the first year of the government's term of office, he said, and would even then be entirely dependent on the level of economic growth that had been generated.
The first phase would consist of a series of limited but "well-aimed" measures to kick-start growth, while phase two consists of the 2002 budget, centering on mainly pensions and an "innovative management" of state assets.
Berlusconi, without giving a time scale, has said he plans to gradually reduce the current five income tax rates to just two: a 23% bracket for income between 20 million lire per year and L200 mln; and a 33% bracket for income over L200 mln, with income below L20 mln exempt from tax. He estimates a maximum total cost of L70 tln," (around 3% of GDP), which analysts say is broadly realistic.
Asked if this tax cutting program would begin in the 2002 budget, to be presented by the government at the end of September this year, Tremonti replied adamantly, "No, no, no," explaining that the budget will be used above all to launch a system of private pension funds and, he hinted, to reform the country's pension system.
Tremonti explained that these private pension funds will be "market oriented," rather than "union-oriented," a swipe at the present government's vain attempts to launch occupational pension funds, which have floundered on reciprocal vetoes from trade unions, and employers' association Confindustria.
"The big difference between us and the center-left is that they wanted the pension funds controlled by the unions, while we want pension funds controlled by the market," Tremonti said.
Tremonti also made clear, without saying so explicitly, that a reform to tighten up the generous state pension system will also feature in the 2002 budget.
"You can deduce that there will also be a new round of pension reform in the 2002 budget, but you will have to say that, because I'm not going to, not in the election campaign," Tremonti said.
Asked if the cuts to tax rates were therefore planned for the center-right's second budget, for 2003, Tremonti remained reticent, saying, "We'll see. If our measures on the labor market and pension funds etcetera to kick-start the economy have worked, only then will we look at tax cuts."
Tremonti said the 2002 budget would also contain a "colossal program of modernization of the management of Italy's state assets."
In this regard, he said the center-right had already made contacts with "all the big international banks" to participate in a program of "international leasing, securitization, project financing and other measures," meaning that "Italy will become a financial workshop."
"What the center-left has done in terms of financial innovation is nothing compared with what we will do," he said.
Tremonti stressed that "the center-right is committed to the EMU stability pact," but, despite some pressing, refused to be drawn on whether the center-right would maintain, tighten or relax the present government's deficit targets, which aim at a balanced budget in 2003.
Tremonti said he first had to "carefully verify" the state of Italy's public accounts, and continued to refuse when specifically asked for an assurance that a center-right government would not put off the 2003 target year for a balanced budget.
The "first phase" of the center-right's economic strategy, to be enacted in the first 100 days of office, is key to future policy, Tremonti explained, because it is to contain the measures which must boost growth in order to make the more wide-ranging tax cuts possible later on.
These measures are to center on: the re-introduction of the so-called Tremonti law, which scraps taxation on re-invested corporate profits; the abolition of inheritance and donations tax; and the introduction of "a highly flexible new labor contract."
Tremonti stressed that this contract is in line with the latest EU directives, and "better reflects modern society, which is no longer based around industrial factories."
Asked if he expected that this new type of "flexible" contract, which is expected to relax hiring and firing rules, would meet with resistance from the country's largest trade union, the left-wing CGIL, Tremonti replied "I don't know, I hope not." He would not say how the government would respond in the likely event of such resistance.
Tremonti gave every reason to believe, however, that clashes with the unions were on the cards, speaking of "totally shared" ideas with employers' association Confindustria on what must be done to bring into the open the underground or so-called "grey" economy.