Monti prepares spending cuts to avoid VAT rise Mario Monti's technocrat government was meeting late on Monday to identify cuts in public spending that would keep Italy on course to meet its budget deficit targets without resorting to further tax increases that risk worsening the recession. Government officials said it was possible that the cabinet would agree on initial cuts of up to €5bn this year and establish a special commission to identify deeper reductions to enter into force in 2013 and beyond. Enrico Bondi, known as Mr Fixit for his success in rescuing the Parmalat dairy group from bankruptcy, was touted as a possible head of the commission. Italy's prime minister is under increasing pressure to cut spending, both from the public as well as the main parties in parliament supporting his government, rather than increase value added tax later this year. Under a budget law passed by Silvio Berlusconi's previous centre-right government, the top rate of VAT will increase from 21 to 23 per cent in the final quarter of this year if Italy is failing to reach its budget deficit targets, set at 1.7 per cent of GDP for 2012. Mr Monti's €30bn austerity package, passed last December, was heavily oriented towards tax increases rather than spending cuts - an emphasis that is now widely recognised in the government as having driven Italy deeper into recession. This month the government revised its GDP forecast for 2012 to a contraction of 1.2 per cent from minus 0.4 per cent. "The objective is to avoid a VAT increase that would further depress the economy," a government official said. Mr Monti's cabinet was expected to make its decision after hearing a report from Piero Giarda, the minister leading the spending review. Even though €5bn is less than one per cent of total public spending, which stands at about half of GDP, politicians were already wrangling over where the axe should fall. The centre-left Democrats said health and education should not be touched, while Mr Berlusconi's centre-right People of Liberty warned against cuts for police and the military. Public anger is mounting at the prospect of further tax increases on top of sharp rises in energy bills and the cost of petrol. But much of that anger is directed at the main political parties, mired in corruption scandals involving public subsidies that they have so far refused to cut. The rightwing Northern League, whose treasurer is under investigation for suspected money laundering and embezzlement of public funding, is mobilising mayors in what the party calls a campaign of civil disobedience against collecting property taxes due to come into force in June. The initiative, driven by the Northern League's Roberto Maroni, who was interior minister in Mr Berlusconi's coalition government, is widely seen as a desperate effort to appease disillusioned voters ahead of local elections this weekend. The Italy of Values party, which like the Northern League is in opposition to Mr Monti's technocrats, said the government was not going far enough with its cuts.