, simplifying the system. the tax base for irap can now be drawn directly from the company ’ s income statement without the adjustments required for business income, independently of the rules followed in drawing up the accounts ( italian civil code or international accounting standards ). this produces not only a simplification of formalities but also greater certainty for firms, by reducing the scope for possible disputes. the restructuring of irap is accompanied by the diminution of some tax credits ( those for small enterprises and the fixed - amount credit in connection with labour costs ) ; and as for ires, accelerated depreciation is no longer allowed. for banks and insurance companies the tax base will include 50 per cent of dividends. sole proprietorships and partnerships will be able to opt, in place of personal income tax, for separate taxation of retained earnings, at the same rate as corporate income tax. for self - employed workers and small enterprises with revenues of less than €30, 000 a substitute tax regime is introduced with a tax rate of 20 per cent, exemption from vat and irap, and documentation and accounting simplifications. in addition to the revenue requirement, eligibility for this regime also requires that the taxpayer not have made export sales, not have had any employees during the year, and not have purchased capital goods worth more than €15, 000 in the last three years. at present self - employed workers and small enterprises can opt for one of four different, favourable tax regimes, if they comply with a specific set of requirements ( involving amount of revenues, start - up of new business, inclusion within sector studies ). of these regimes, the only one that will remain is that for persons who start up new professional or business activities, and only for the tax year in which the business is started up and the following two. finally, some sectoral tax reliefs are extended to 2008, reducing estimated revenue by €0. 7 billion. 4. some evaluations the government has said on more than one occasion that the crucial challenge of italy ’ s public finances consists in simultaneously bringing down the debt ratio and reducing the fiscal burden on honest taxpayers. to achieve these objectives it is necessary to curb primary current expenditure, which in the past few years has grown at a real rate of between 2 and 2. 5 per cent a year, and to “ spend better ” by improving the effectiveness and efficiency of public - sector operations. recent fiscal policy decisions do not brake the growth in expenditure. the

to identify instruments that give systematic support to persons in need. a preliminary assessment suggests that some of the measures proposed could be targeted more specifically at the weakest categories. apart from its temporary nature and the implementation difficulties, the subsidy for persons with low incomes who are unable to exploit all the personal income tax reliefs, introduced only for 2007, might not be very effective in reducing the extension of poverty. in particular, it does not take account of households ’ overall economic conditions. * * * the budget for 2008 keeps the main items of the public finances at the levels forecast for this year ; it does not take advantage of the good performance of revenue to accelerate the reduction in the public debt ; it does not return a significant share of the recent increases in revenue to taxpayers. over a longer span of time the forecasting and planning report shows that a one percentage point increase in the growth rate of the economy for ten years would reduce the ratio of the public debt to gdp by about 10 percentage points. fiscal policy can be a major factor in the growth of the economy. a pension system that encourages people to continue to work ; a tax system that attenuates the heaviest and most distortionary forms of taxation ( the measures on corporate income tax and the regional tax on productive activities are steps in the right direction ) ; an education system that, reformed along the lines of the government ’ s white paper, guarantees higher and more uniform levels of learning across the country ; and a system of social assistance carefully targeted to needy citizens these are the pillars of such a fiscal policy. a start has been made on measures to increase the efficiency of public expenditure and improve the organization of the public sector. the challenge is now to achieve a sharp slowdown in primary current expenditure, reduce the burden of taxes and social security contributions on workers and firms, and increase the share of public resources invested in infrastructure and human capital, together with that allocated to the alleviation of poverty. tables and figures table 1. main indicators of general government finances table 2. general government revenue table 3. general government expenditure table 4. general government borrowing requirement table 5. general government selected fiscal indicators : government projections – efpd of june 2007 and september update table 6. estimated effects of the budget on the general government consolidated accounts table 7a. requirements to qualify for early retirement ( july 2007 agreement ) table 7b. requirements to qualify for early retirement ( 2004 reform ) figure 1. general government net borrowing, primary surplus and interest payments figure 2