US embassy cable - 04ROME4922

UNCLAS ROME 004922 
 
SIPDIS 
 
 
DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA 
PARIS ALSO FOR USOECD 
DEPARTMENT OF TREASURY FOR HULL, OASIA HARLOW, STUART 
STATE PLEASE PASS CEA 
STATE PLEASE PASS FRB FOR GUST 
FRANKFURT FOR WALLAR 
USDOC 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ELAB, PGOV, IT, KPRP 
SUBJECT:  AT ELEVENTH HOUR, ITALY APPROVES 2005 BUDGET 
 
1.   ON DECEMBER 29, PARLIAMENT PASSED THE 2005 BUDGET 
AFTER A LONG DEBATE TO RECONCILE THE COMPETING DEMANDS 
OF GOVERNING COALITION PARTNERS FOR PORK; PRIME 
MINISTER BERLUSCONI FOR A TAX CUT; AND FINANCE MINISTER 
SINISCALCO FOR A 2005 BUDGET DEFICIT BELOW THE 
STABILITY PACT THREE-PERCENT BUDGET DEFICIT/GDP CAP. 
THE 2005 BUDGET WAS PASSED ON A CONFIDENCE VOTE JUST 
BEFORE THE DECEMBER 31 DEADLINE (BY LAW, BOTH HOUSES OF 
PARLIAMENT MUST PASS THE BUDGET BY THEN). 
 
2. ON THE SURFACE, THE 2005 BUDGET INCORPORATES THE 
MOST AGGRESSIVE DEFICIT REDUCTION PACKAGE IN THE LAST 
DECADE AND SEEKS 24 BILLION EURO (OR 1.7 PERCENT OF 
GDP) IN SPENDING CUTS, AND REVENUE INCREASES TO SHRINK 
THE DEFICIT/GDP RATIO TO 2.7 PERCENT.  THE BUDGET ALSO 
INCLUDES A STIMULUS PACKAGE BASED ON A 4.2 BILLION EURO 
TAX CUT.  EU, OECD, IMF, AND BANK OF ITALY OFFICIALS 
HAVE ALL EXPRESSED CONCERN THAT THE BUDGET DEFICIT WILL 
ACTUALLY EXCEED 3 PERCENT OF GDP NEXT YEAR, AND THAT 
SUPPLEMENTAL, ONE-OFF MEASURES WILL BE REQUIRED IN 
2005, MOST LIKELY AFTER THE SPRING ELECTIONS. 
 
3. EMBASSY WILL MAKE TWO COMPREHENSIVE REPORTS ON BOTH 
THE TAX PACKAGE AND ON THE 2005 BUDGET IN EARLY 2005. 
 
SEMBLER 
 
 
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	2004ROME04922 - Classification: UNCLASSIFIED