ROME — Scrambling to fend off a sovereign debt crisis, the Italian government on Friday approved $65 billion in additional emergency austerity measures over the next two years, including tax increases and cuts to local government in an effort to balance the budget by 2013.

The government was responding to demands by the European Central Bank, which last week began buying Italian bonds, driving down Italy’s borrowing costs. But it did so on the condition that Italy make significant changes, including liberalizing its labor market and closed professions, privatizing state industry and adjusting its pension system.

After an emergency cabinet meeting on Friday, Prime Minister Silvio Berlusconi announced the new measures, which include raising the capital gains tax to 20 percent from 12.5 percent, except for government bonds; eliminating several nonreligious national holidays; and cracking down on businesses that do not give receipts.

“It wasn’t easy,” Mr. Berlusconi said, looking tired at a news conference on Friday evening, after days of round-the-clock negotiations over the normally quiet August holiday period. “We’re personally pained to have to take these measures, but we are satisfied.”

Facing intense market turbulence and rising borrowing costs, Mr. Berlusconi pledged last week that Italy would eliminate its budget deficit, from the 3.9 percent of gross domestic product it is projected to represent this year, to zero by 2013.

That would be a year earlier than originally planned in a $65 billion austerity package approved by Parliament in July, including tax increases and higher health care fees.

The new measures go into effect as soon as they are approved by the president of Italy, who is expected to sign off on them shortly. They must be approved by Parliament, which can also make modifications, within 60 days.

Market pressures have placed Mr. Berlusconi’s increasingly weak government in a difficult position. With a public debt of 120 percent of gross domestic product, it has to cut spending and stimulate an economy that is expected to grow by only 1 percent this year.

The new measures also include a “solidarity tax” on high earners: an additional 5 percent tax on incomes above $128,000 a year and 10 percent on incomes above $213,000 a year for the next two years.

“Our heart bleeds to have to do this, we who bragged never to put our hands in the pockets of Italians,” Mr. Berlusconi said. “But the world situation changed, and we found ourselves faced with the hugest global crisis ever.”

In a concession to growing antipolitical sentiment in Italy, Mr. Berlusconi said the government would also cut $13.5 billion from local and regional governments.

It would do this in part by eliminating 54,000 elected positions in provincial, regional and city governments after the next round of local elections, and by cutting politicians’ salaries and requiring members of Parliament to travel economy class.

Earlier on Friday, representatives of regional, provincial and city authorities gave a news conference criticizing the measures. Roberto Formigoni, the president of the Region of Lombardi, said that cuts to regional social welfare and transportation systems would have “a depressive effect” on the economy.

The government said the measures also include increased labor flexibility and some changes to Italy’s pension system, but it did not go into greater detail.

Finance Minister Giulio Tremonti is expected to give a news conference on Saturday to elaborate on the measures.

In Italy, changes to the labor market have to be negotiated with business leaders, who have criticized the government’s proposals as too little, too late, and labor unions, which have said they unfairly place the burden on middle- and lower-class Italians.

Article source: http://www.nytimes.com/2011/08/13/world/europe/13italy.html?partner=rss&emc=rss