ROME (Reuters) - Italy's government halted an overhaul of tax laws on Sunday after a controversy erupted over whether the proposed measures might annul the 2012 tax fraud conviction of former leader Silvio Berlusconi.
Prime Minister Matteo Renzi said the bill would be reviewed before going to parliament to dispel suggestions he was helping Berlusconi in exchange for the former leader's support in future electoral and institutional reforms.
Italian newspapers on Sunday cited a part of the bill that tweaks tax-crime punishment in a way that might put Berlusconi's conviction in doubt. The proposed reforms were announced last week.
"If people think there's some sort of backroom deal, we will delay this measure until ... Berlusconi has finished his community service," Renzi said during a television interview. Berlusconi, 78, is doing a year of community service in a nursing home.
The government's about-face highlights the delicate relationship Italy's political establishment has with Berlusconi. The former prime minister was ousted from government in 2011 and who has since been banned from public office, but his conservative party still has many members in parliament.
The bill's delay also signals how hard it will be to overhaul Italy's stagnant economy, the euro zone's third-largest. Reforms are crucial for rekindling growth after three years of stagnation. But the effort is being hampered by unions and other powerful lobbies.
On New Year's Eve, for example, 85 percent of the police officers who were due to patrol Rome didn't come to work, taking sick leave or citing blood donations or personal problems. Hundreds of other public-sector workers, including bus drivers in Bari and street cleaners in Naples, also called in sick.
The absences have prompted Renzi to promise an acceleration of changes to Italy's bloated public administration -- an effort that has so far eluded most governments, including his own.
Last week, at the same cabinet meeting that approved the tax bill, Renzi announced changes to Italy's labor code that would make it easier for private companies to fire workers during economic downturns. Renzi came under some criticism for not applying the changes to government workers.
But in an interview with la Repubblica newspaper on Sunday, Public Administration Minister Marianna Madia said "similar criteria might be applied to the public sector."
The tax measure that caused the weekend's controversy would exempt people convicted of tax crimes from punishment if the amount evaded or defrauded was less than 3 percent of their total taxable income. The amount for which Berlusconi was convicted would seem to be below that bar.
Economy undersecretary Enrico Zanetti said in an interview with Sky TG24 that the government could easily amend the bill to exclude tax fraud from the exemption. But he said the uproar over the bill was a sign that Italy was not "turning a page."
(This story was refiled to fix typo in headline)
(Reporting By Alessandra Galloni)