Italian government approves removal of property tax

The Italian coalition government finalised a deal to readjust the controversial property tax known as IMU on Wednesday, agreeing to plug the revenue hole with spending cuts and other "virtuous choices," deputy prime minister Angelino Alfano said on his Twitter account. Alfano defined the decree to eliminate IMU as a "tax-free law".

"Mission accomplished! Primary residence and farm tax for 2012 have been cancelled. The term IMU will now disappear from the dictionary," wrote Alfano. 

"IMU is cancelled and from January 1, 2014. It will no longer exists as we know it," Premier Enrico Letta said following the afternoon cabinet meeting.

The real-estate tax will be reformed under the umbrella term "service tax", Letta said. "All political parties gave a clear indication that there was the need to solve the issue of IMU...it is a radical change, but absolutely necessary, he said. "Now we can look towards the future of the government with much more confidence," Letta said.

Former premier Silvio Berlusconi and supporters of his People of Freedom (PdL) party have threatened to bring down Letta's government since its founding in April if it failed to roll back the tax, a central plank in his campaign platform in February elections when his centre-right party roared to second and ultimately won a junior partnership in the current left-right coalition.

While the PdL House whip Renato Brunetta said after talks late Tuesday that the government was looking for ways to cover the revenue lost from the tax, Economy Minister Fabrizio Saccomanni has long said the country could not afford to scrap it. The property tax was introduced by the technocrat government of former premier Mario Monti when he took over from Berlusconi two years ago to help mitigate Italy's debt crisis and avoid a Greek-style meltdown.

However, Berlusconi's party claimed ahead of the cabinet meeting on Wednesday to decide IMU's future that it had already triumphed. "The People of Freedom party has respected its pact with its constituents and Premier Letta has respected its agreement with the PdL. The positive thing is that all citizens will benefit," Berlusconi said when the decision was announced.

"The tax burden will be reduced by over 4 billion euros.

That is money that will remain the in pockets of Italians and allow us to look at the future with more confidence," Berlusconi said.

"Today's reform is a turnaround to the road for a virtuous path of growth: the value of property will increase, income will increase, consumption will go up, new jobs will be created and positive expectations for the future will return," Berlusconi said.

Brunetta said he was extremely satisfied by the Cabinet meeting's result.

"Now the Italian economy can recover and breathe," Brunetta said.

Ending the controversial IMU property tax will ease the burden on Italian families, Letta said.

"We will get a reduction of the tax burden on Italian families, and that was one of the objectives of the government".

A decree formalizing changes to tax laws will be developed "in the coming weeks," he said.