Italy Seeks Boost For Car Market

Italy's centre-left government on Monday unexpectedly introduced incentives for the purchase of new cars, as part of a package of measures to stimulate the sluggish economy. The incentives were unveiled alongside fiscal measures designed to raise L4,305 billion as part of the 1997 budget.

Romano Prodi, the Prime Minister, told a press conference that, with the 1997 budget now in place, his eight-month-old government was entering a new phase with the emphasis on fighting unemployment and promoting economic growth.

The decision to introduce a stimulus to Italy's depressed domestic car market came as a surprise even though the automotive industry has been lobbying for this since September.

 

The government has consistently been against the idea, except as part of a broader EU initiative. Fiat, which accounts for 45 per cent of the domestic car market, saw its shares rise L112 to L4,340, up 2.6 per cent on the day, as news leaked out that a decision was imminent. Fiat has been one of the most insistent voices calling for some sort of system similar to that introduced by France.

The French scheme was criticised for unbalancing the market. The scheme briefly outlined yesterday by Prodi will be temporary'', covering the next nine months. In this period owners who have owned a vehicle for a minimum of six months and whose car is a minimum of 10 years old, can trade it in and receive a discount from the producer on the purchase of a new model.

The government will reimburse the producers. This discount will vary according to any discount offered by dealers. For vehicles up to 1,300 cc it will be a maximum of L1.5 million, while for larger cars the max-imum will be L2 million.

Other measures to encourage faster growth include a reduction in VAT from 19 to 10 per cent on residential property repairs, and a VAT cut from 16 to 10 per cent on meat, meat products and processed meats such as salami.

At the same time employers will be able to benefit from certain tax breaks to ensure labour costs are cheaper in the depressed south of the country. Overall cost of these measures will be L1,787bn. The economy is expected to grow 1.2 per cent next year against the budget's projection of 2 per cent. The fiscal measures agreed to raise L4,305bn were in line with expectations. Mr Vincenzo Visco, finance minister, said they would be neutral on inflation and for the taxpayer. He estimated the effect on inflation would be 0.02 per cent. The bulk of the funds, to the tune of L1,800bn, will come from obliging producers of oils, alcohol, methane gas and electricity to accelerate excise duty payments. Petrol prices will not change but a temporary tax of L22 per litre, introduced last year to support Italian troops in Bosnia, will remain. Cigarette prices will go up, rising some L500bn; but this increase will not take effect until the end of February.