In another important element of its austerity package, the new Italian government plans to further increase the value-added tax (VAT) to 23 percent from 21 percent in September 2012. The previous administration had already raised the VAT to 21 percent from 20 percent last September, prompting Anci to express concern about the impact of the measure on an already weak domestic demand. Italy is largely believed to have entered a recession, registering a likely drop in GDP next year.
Industrial production declined by 0.2 percent in November as compared to the previous month. The Organization for Economic Cooperation and Development (OECD) recently slashed its 2012 forecast for Italian GDP to a 0.5 percent decline from a previous estimate made in May of 1.1 percent growth. OECD's forecast was released before Monti's €30 billion austerity package.
On the other hand, the new package includes some fiscal measures that the business community had called for to underpin growth. The government proposes some tax breaks for companies hiring staff, especially women and youth, and reinvesting profits. The government also increased a fund guaranteeing financing for small and medium-size companies by €300 million. The new industry minister, Corrado Passera, was formerly the chief executive of Italy's largest bank, Intesa Sanpaolo. He aims to improve the relationship between banks and small companies. He estimates that reinforcing the fund will ensure access to at least €20 billion in credits to companies. Businesses have been complaining about a new credit crunch due to stricter guidelines for banks and the turmoil that has recently hit financial markets.