Italians crack down on tax-dodgers in effort to rescue lira

AMID urgent warnings that Italy is careering headlong towards economic disaster, the government yesterday announced a series of drastic measures to help reduce the runaway state deficit.

After a tense and heated cabinet meeting the Prime Minister, Giuliano Amato, announced he would seek special powers for three years to take action in cases of economic emergency without requiring parliamentary approval.

Two plum state-owned firms, the Credito Italiano bank and the Nuovo Pignone engineering company, will be privatised to bring the Treasury desperately needed income. Certain kinds of investment funds will receive tax breaks in the hope of reviving Italy's crisis-stricken stock exchanges.

He also announced a crackdown on tax-dodging - a national skill. This will involve a device called an 'income meter' under which incomes will be calculated not only on the basis of what Italians declare - which is assumed to be inaccurate - but also on what they buy, such as boats, country cottages and so on.

There will be a new system of cross-checking to track down firms which dodge the contributions towards their employees' social insurance, to be done by a unified force instead of the current four separate and unco-ordinated police forces and inspectorates.

'The weakness of our economy made it essential to adopt measures to strengthen policy and our currency,' the Prime Minister said. 'We feel these measures are sufficient to calm operators who were worried about the stability of the lira due to internal problems.'

The cabinet was hammering out its decisions as the lira once again slid perilously close to its limit against the German mark in the European monetary system. The ministers had received dire warnings from the most authoritative quarters the previous day that the situation was desperate and they had not a moment to lose.

The president of the Court of Accounts - the State Audit Office - Giuseppe Carbone issued the unprecedented warning: 'There is the danger of bankruptcy of the state accounts and with it the collapse of the institution and of democracy.'

Italy's Paymaster-General, Andrea Monorchio, disclosed that despite measures already taken earlier this summer, the state deficit for this year, which was expected to reach an astronomical L150,000bn (about pounds 75bn) is likely to be nearer L160,000bn and the country's industrialists, chafing under the 15 per cent discount rates imposed last week to save the lira from devaluation, warned that the government must act now to avoid collapse later on.

Gianni Agnelli, the head of Fiat, said if it did not use the next two weeks, while the lira will be propped up by the Italian and other European central banks to avoid a realignment of the EMS before the French referendum on the Maastricht treaty, 'there will be disaster'.

Yesterday's measures are only part of the government's plans to cut state spending which has been allowed to run out of control during years of nonchalant neglect by Italy's political parties. Reductions in the country's generous pensions, in health spending, in the overmanned civil service and reorganisation of regional administration are among important projects.

The special powers which the government will ask from parliament would be used, the Prime Minister explained at the press conference, in cases when the Bank of Italy should decide that the situation on foreign exchanges or money markets was endangering the national economy.

The powers would permit it, for instance, to suspend state spending commitments, to raise loans, to raise or reduce taxes and foster investment in such areas of the economy as it thought necessary.

The privatisation of Credito Italiano and Nuovo Pignone is the first step towards the privatisation of the many state-controlled firms Italy has accumulated since the Second World War.

The flourishing Nuovo Pignone is regarded as one the world's five biggest and most advanced companies in the field of machinery construction, such as gas turbines and plant for the oil and textile industries.

But this step did not overly impress the leaders of Confindustria, the Italian industrialists' confederation. 'It is not enough,' said Luigi Orlando, one of its vice- presidents. 'We hope this is only the beginning.'

Meanwhile, a step towards the reform of Italy's discredited political system was taken yesterday when the new parliamentary commission on constitutional reform, composed of members of both houses, started its work. Its most important project will be a new electoral law.