Italian government does U-turn on tax credits

Credit of 25% of budget up to $7.8 mil ceiling

ROME -- The Italian government on Tuesday reversed its two-week-old plan to scrap film production incentives, calming a row that could have left the country's major film festivals without Italian productions.

In late June, the Silvio Berlusconi-led government said it would scrap a plan put into motion by the previous Romano Prodi-led government. The plan would have provided financial aid equivalent to 25% of a film's budget up to 5 million euros ($7.8 million) to local and foreign film projects shot in Italy.

Berlusconi said that the plan was inconsistent with his budget reduction plans and that he would scrap the incentives before the first euro was paid out. That announcement sparked a protest from film industry groups, which announced they would boycott this year's festivals in Venice, Rome and Turin unless the policy was reversed.

The new plan does include several changes from Prodi's proposal, including a shift that will take payouts for the incentives from the government's general fund rather than from the budget of the Ministry of Culture, which will see its cash allocation reduced by 7% in 2009 compared with levels this year.