ROME — The International Monetary Fund pressed Italy on Thursday to do more about "unacceptably high" unemployment, especially among young people and women, and urged it to bring back an unpopular property tax whose return could threaten the survival of Premier Enrico Letta's coalition government.
Former premier Silvio Berlusconi made suspension of the tax on primary residences a condition of his conservative forces vital support for Letta's government. Letta reluctantly agreed to let property owners skip paying the tax in June, and has said his government would decide later in the year whether to revive the tax, which brings in some 4 billion euros ($5.2 billion) in revenue annually.
In a report at the end of its annual visit to the country, the IMF told Italy the tax "should be maintained." Berlusconi's lawmakers immediately countered with a vow that the tax would be abolished, raising tensions in the already uneasy coalition.
Berlusconi's center-right People of Freedom party, "reiterates that it is absolutely necessary" to abolish the tax, said Anna Maria Bernini, a senator in the party. While expressing "maximum respect" for the IMF's analysis, Bernini said the backing for the government "came from our lawmakers in Parliament and not the IMF."
Berlusconi had made abolishing the tax the main plank of his populist campaign for election earlier this year. His forces came in second, and their backing was needed to secure Letta's center-left bloc enough support in Parliament to govern.
Mario Monti, who succeeded Berlusconi in late 2011 when financial markets lost faith in the media mogul's handling of Italy's debt crisis, promptly brought the tax back. But Letta was forced to suspend it right after taking office as the price for Berlusconi's support. Monti paid his own high price for his severe austerity measures, including reviving the tax, when Berlusconi yanked support for Monti's government late last year.
"All countries have property taxes," said Kenneth Kang, an IMF official, when asked about whether it was worth reviving the tax if its return meant jeopardizing the government's stability. Italian Economy Minister Fabrizio Saccomanni, at the same news conference, tried for a diplomatic answer.
"It's a question we are evaluating," Saccomanni said. "Certainly we'll take into consideration the IMF's opinion."
Still, he said, `'the aim is to find consensus within the coalition."
That could be a daunting task, since Berlusconi's credibility with his voters will be at stake. But the alternative – possible fresh elections as Italians grow impatient over stubborn recession and soaring unemployment – could be unnerving enough to keep the uneasy coalition together.
While praising Italy for having taken "bold steps" to heal its finances, the IMF's report card gave Italy poor grades over unemployment. Italy's unemployment rate was 12.2 percent in May, though its youth unemployment rate was 38.5 percent, far higher than the 23.1 percent rate across the European Union.
EU leaders have agreed to put aside 8 billion euros ($10.4 billion) starting next year, on top of funding from other European funds and institutions, to ease unemployment among the under-25s.
Another IMF official who worked on the review, Aasim Husain, recommended more flexible contracts to young people with protection gradually increasing as one way to reduce youth unemployment. Many employers are reluctant to hire for fear Italy's worker protection laws will make it hard to cut staff should business sour.
The IMF estimated growth this year would be a negative 1.8 percent, before recovering to 0.7 percent next year. The IMF report said the recovery is expected to begin in late 2013. But it warned that `'policy slippages, including at the European level" could undermine market confidence in sovereign debt, and lead to a tightening of credit.
Italy's competitiveness is hurt by factors including regulatory hurdles, a cost of electricity that is as much as 40 percent greater than in France and Germany, and an inefficient justice system, the IMF concluded.