With twitchy financial markets nervous about the prospect of fresh political instability in Italy, the Milan stock market fell for a second day and government borrowing costs rose ahead of a closely anticipated bond auction tomorrow.
Ministers are due to meet today to decide what to do about the tax on main residences, which Berlusconi’s centre-right party insists must be scrapped if it is to continue supporting centre-left premier Enrico Letta.
The housing tax has dogged Letta’s coalition of traditional rivals ever since it was formed after inconclusive elections in February.
Senior political leaders including Letta and President Giorgio Napolitano have warned that any threat to the left-right government’s survival would risk a return to the kind of turmoil seen at the height of the eurozone debt crisis, when Italy, the bloc’s third biggest economy, came close to a Greek-style meltdown.
Despite some signs of progress, including proposals to replace the tax with a new local services levy, there has been no firm agreement on where to find the €4bn a year it would take to abolish the tax.
“This is a fundamental policy issue,” Renato Brunetta, a Berlusconi loyalist and lower house leader of his People of Freedom (PDL) party told RAI state radio.
“The fact that the government has so far failed to present a solid proposal has created a lot of doubt, it’s not serious to proceed in this way,” he said.
The battle over the housing tax has underlined the severe constraints on Letta in trying to reverse Italy’s worst post-war recession.
Yesterday Berlusconi told PDL hardliners to stop their open threats to pull out of Letta’s coalition, boosting hopes that in the end a deal will be reached to avoid an immediate crisis.
However Letta’s own centre-left Democratic Party (PD) has so far rejected demands to scrap the housing tax, known as IMU, and instead proposed a partial abolition which would save most taxpayers but still hit richer Italians.
“Taking action on IMU has to be seen in a context where there are other priorities,” deputy economy minister Stefano Fassina said, adding that Italy’s strained public finances did not allow an across-the-board cut.
He said scrapping the tax for 85% of Italians but taxing the remaining 15% would reduce the funding gap to €2bn and allow the government to provide resources for other needs including unemployment relief.
The PDL made scrapping IMU a central plank of its campaign platform in the February election.