Italy considers increasing tax cuts to curb energy prices

Italy is considering increasing by 2 billion euros $2.27 billion dollars, set aside to curb energy prices next year, using resources previously planned to cut income and business taxes, according to three government sources.

Mario Draghi's government has spent more than 4 billion dollars this year to try to rein in utility bills by compensating companies that agree to cap their tariffs, because of the soaring international energy prices.

In the budget approved by the cabinet in October, the government is considering double that amount, because of the energy cost pressures continuing to drive consumer price inflation.

The government will use less than the 8 billion euros earmarked in the budget to cut income and business taxes, and will not be named, because of the sensitivity of the matter, the sources said.

Resources are limited as the Treasury aims to reduce the deficit to 5.6% of gross domestic product in 2022 from the 9.4% target this year.

One of the sources said that the cabinet is likely to discuss the matter on Friday.

The tax cut will mainly focus on income tax IRPEF, reducing the number of tax rates to four from five, with the largest benefit going to middle-income tax-payers earning between 28,000 and 55,000 euros per year.

According to a preliminary deal reached among the ruling parties, the first tax band on annual income between 8,000 and 15,000 euros will be left at 23%. The second band, between 15,000 and 28,000 euros, will be lowered to 25% from 27%.

The third band, with incomes from 28,000 to 55,000 euros, will get a more substantial cut to 35% from 38%.

The fourth band, with income from 55,000 to 75,000 euros, will rise from 41% to 43%. This is the rate that is currently applied on income over 75,000 euros, effectively cancelling the fifth income tax band.

Draghi has been meeting with groups in his national unity coalition this week to hammer out the details of the tax reform.