Italy tweaks housing tax to help poorer families

ROME (Reuters) - Italy's government made more changes on Wednesday to its already much-altered system of housing taxes, giving local authorities room to raise rates on more expensive houses to fund deductions for lower income families.

The changes, announced by Prime Minister Enrico Letta's office, are the latest in a series of turnarounds on housing tax, one of the most sensitive tax issues in a country where as many as 80 percent of people live in their own houses.

Italy, one of the world's biggest government debtors, has been struggling for years to overhaul its finances.

The government said it would propose legislation enabling local authorities to increase the highest rates of housing services tax by between 0.01 and 0.08 percent to fund further deductions for poorer families. Overall, there would be no increase in the total tax burden, it said.

The statement gave no further details but the increase would lift the top rate of service tax on primary residences from 0.25 percent to a maximum of 0.33 percent of the value of a property. Higher rates would apply to second houses and other properties.

After promising to scrap the hated IMU tax on primary residences introduced by the last government, Letta's left-right coalition faced an uproar from local authorities which depended on the tax to fund vital public services.

It also faced conflicting demands from the centre-right, which opposed any tax on housing, and the centre-left where many pressed for higher taxes on more expensive properties and cuts for the less well-off.

While IMU on primary residences has been scrapped, a new housing services tax dubbed Tasi has been introduced in its place, drawing criticism from opposition parties that the government had simply replaced one housing tax with another.

Letta's government has pledged to reduce the overall tax burden by cutting spending and stepping up efforts against tax evasion and it has been keen to be seen doing something to help the less well-off, suffering badly after years of austerity.

"IMU on primary residences has been abolished but obviously we can't have a new tax that's worse than the old one," Regional Affairs Minister Graziano Delrio told business daily Il Sole 24 Ore. "Without the deductions, we would have had a tax that was less fair and worse for the least wealthy," he said.

(Reporting by James Mackenzie; Editing by Ruth Pitchford)