Italy's Draghi to cut taxes, raise retirement age in first budget

By Giuseppe Fonte and Angelo Amante

ROME, Oct 28 (Reuters) - Italian Prime Minister Mario Draghi will present his first budget on Thursday, aiming to lower the budget deficit next year while cutting taxes by 8 billion euros ($9.29 billion).

The tax cut will apply to personal income tax and a regional corporate tax, according to a draft of the budget seen by Reuters while it was being discussed by the cabinet.

The 2022 budget deficit is targeted to fall to 5.6% of national output from 9.4% this year, reflecting strong economic growth and the end of stimulus measures introduced at the height of the COVID-19 pandemic.

The budget also increases the retirement age next year, stipulating that Italians will be able to draw a pension from the age of 64 provided they have paid in 38 years of contributions.

The new stopgap regime increases the retirement age by two years compared with the so-called "quota 100" system in place for the last three years, by which retirement was possible aged 62, with 38 years of contributions.

The issue has created tensions in Draghi's fractious national unity government, but the co-ruling, rightwing League party -- the main supporter of the quota 100 scheme -- said it was satisfied with the new arrangement for next year.

Draghi, who will hold a news conference after the cabinet meeting, is continuing to negotiate with the ruling parties and trade unions over a longer-term solution.

With one of the world's oldest populations, Italy spends more than any other European country on pensions except Greece, Eurostat data shows. According to the Treasury, Rome's pension bill reached 17% of national output in 2020, an all-time record.

The budget also extends by 6 months tax breaks aimed at spurring tie-ups in the country's banking sector. However, it reduces their amount, and sets a new cap on incentives for bank mergers, according to the draft.

The scheme was a key plank of the incentive package the Treasury had tabled to sell Monte dei Paschi di Siena (MPS) BMPS.MI to bigger rival UniCredit CRDI.MI. However, talks over the potential merger deal collapsed on Sunday.

New taxes on plastics and sugary drinks planned for next January will be delayed to 2023.

($1 = 0.8614 euros)
writing by Gavin Jones; Editing by Christina Fincher

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