Italian low-paid workers handed income tax cut

The government of Italian Prime Minister, Mario Monti, has announced a cut in income taxes for low-wage earners, an unexpected move aimed at easing the pain of austerity measures being enforced to reduce public debt.

The tax cut is part of a plan that will allow it to balance the budget in 2013 but also give some relief to low-income families and support economic activity and employment. "This budget shows budgetary discipline – vigorously pursued by this government since its first day in office – does pay off," said Mr Monti.

Among the measures were a cut in the personal income tax rate to 22 per cent from 23 per cent for revenues up to €15,000 (£12,000) a year and to 26 per cent from 27 per cent for revenues between €15,000 and €28,000.

The government also announced an additional €3.5bn in spending cuts and a new tax on financial transactions it said was being introduced in 10 other eurozone countries, including Germany and France.

Italy's need to regain market confidence in its public finances was highlighted in a pair of short-term bond auctions yesterday in which the government raised €11bn at slightly higher interest rates. Particularly noteworthy was the increase in the interest rate on one-year bonds to 1.91 per cent from 1.69 per cent in the previous auction of such debt. While the rate is still manageable and demand was strong, the increase shows investors are somewhat more wary of taking on Italy's debt.

In recent weeks, the focus in Europe's debt crisis has shifted to Spain and Greece. The yield on Italy's benchmark 10-year bonds remains below an affordable rate of 5 per cent as investors have given their backing to the economic strategy of the Monti government and a new European plan to give financial aid to countries in need.