Italy austerity plan revisions may need EU approval

By Stefano Bernabei

ROME (Reuters) - EU authorities would need to re-examine Italy's austerity plan if it is overhauled, an Italian Treasury official said on Friday, while town mayors added to the clamor for amendments by protesting against funding cuts.

Silvio Berlusconi's center-right government approved the 45.5 billion euro ($65 billion) package earlier this month to meet European Central Bank demands for action but it is now facing calls for revisions as the package makes its way through parliament.

Mayors from around the country demonstrated in Rome on Friday, urging a rethink of some 9 billion euros worth of funding cuts to local government, while business leaders have called for a hike in a tax on energy firms to be scrapped.

The government has insisted that the overall size of the deficit cuts will not change. But many even in Berlusconi's People of Freedom (PDL) party are troubled by some measures, notably a "solidarity tax" on incomes above 90,000 euros.

Amendments to the draft budget must be presented to the Senate budget committee by Monday evening. Berlusconi will meet other coalition leaders before the critical deadline.

Pressure for changes to the budget in parliament must take account of the likely view of Italy's partners, a Treasury official told Reuters, even though Italy is not under any European Union aid program and the EU has not issued any formal assessment of the draft plan.

"The austerity budget, as unanimously approved by the cabinet, got convinced approval from the EU not only in terms of the size of the cuts but also in terms of its measures," a Treasury source told Reuters.

"Modifying can't mean changing it completely, because that would mean sending it back for re-evaluation."

Italian press have reported that Economy Minister Giulio Tremonti has so far resisted pressure from the PDL for changes such as abolishing the solidarity tax and increasing value added tax, often clashing with Berlusconi.

As Italy got drawn into the euro zone debt crisis in recent weeks, the ECB demanded the country bring forward its target to balance the budget to 2013 as a condition for keeping its debt yields in check by buying Italian bonds.

The new austerity package must be passed by mid-October and Italy is under pressure from markets and its international partners to approve it considerably earlier.

Italy's largest trade union has described the current measures as "unfair and wrong" and plans to hold a one-day general strike on Sep. 6 in protest.

Debate over the package has also heightened tension in the ruling coalition, as proposals from the PDL including a suggestion to raise the retirement age have been fiercely opposed by their Northern League allies.

(Writing by Catherine Hornby; Editing by Gavin Jones and Ruth Pitchford)