IMF official: Italy tax change is move in right direction

The Italian government's recent cut to the lowest income tax rates and one point rise in value added tax was a move in the right direction, a senior official from the International Monetary Fund said on Friday.

"In quantitative terms, it's not a very big step but it may have some effect," Carlo Cottarelli, the head of the IMF's fiscal affairs division told Italian radio.

"By taxing income from labor less, you basically tend to encourage employment," he said.

On Wednesday, the government of Prime Minister Mario Monti lowered the income tax rate on the bottom two brackets by one percentage point, in a move estimated to cost some 5 billion euros. In exchange, it raised the VAT rate by one point.

(Reporting By James Mackenzie)