By Giuseppe Fonte
ROME (Reuters) - Italian Prime Minister Enrico Letta promised a wide reform of property tax on Friday, addressing one of the main issues dividing his coalition government, but gave no details on where he would find the billions of euros to pay for it.
He confirmed pledges to suspend the widely hated IMU tax on principal residences brought in by his predecessor Mario Monti but held back from the demands of center right members of his fragile left-right coalition for it to be scrapped entirely.
Letta has had to balance pledges to keep Italy's budget deficit below European Union limits of 3 percent of gross domestic product with the priorities of his diverse coalition, cobbled together two months after an inconclusive election.
"The choices we make will be within these horizons but they will be markedly pro-growth," Letta told reporters after a cabinet meeting.
He also set aside 1 billion euros to boost unemployment benefits for workers placed in special temporary redundancy schemes, part of which would be paid for by funds aimed at boosting productivity in the economy.
National statistics agency ISTAT confirmed this week that Italy, the euro zone's third-largest economy, was in its longest recession since current records began in 1970 and Letta has made boosting growth and cutting soaring levels of youth unemployment a priority for his government.
Payments on the IMU tax due in June, affecting around 15 million homes, will be pushed back until September, pending a broader reform of the overall system of property taxes which he said would be completed by August 31.
The measures, which cover certain agricultural buildings but exclude luxury residences, leave the government needing to find 2 billion euros immediately to help cash-strapped local authorities, which depend on the tax, fund municipal services.
Letta did not detail where the money would come from but the suspension would be financed exclusively from cuts to spending, said Deputy Prime Minister Angelino Alfano, from Silvio Berlusconi's center-right People of Freedom (PDL) party.
The head of the Confindustria business lobby, Giorgio Squinzi, as well as economists from international bodies such as the Organisation for Economic Cooperation and Development, have said the priority should be on cutting payroll charges rather than the housing tax.
But IMU has become a banner issue for the PDL, which has repeatedly demanded its complete abolition as well as the repayment of contributions paid in 2012, a move which would cost around 8 billion euros.
Letta's own center-left Democratic Party wants a more limited cut to the housing tax, to ensure that lower income families drew the greatest benefit. It says the main priority should be finding ways to head off a planned increase in sales tax due to come into effect in July.
(Additional reporting by Steve Scherer, Naomi O'Leary, Catherine Hornby; writing by James Mackenzie; editing by Philippa Fletcher)