Italian president rejects Berlusconi's tax decree

Italian President Giorgio Napolitano refused to sign a key government decree to increase the taxation powers of local authorities, dealing a blow to embattled Prime Minister Silvio Berlusconi.

The cabinet approved the decree at an emergency meeting on Thursday even though the tax measures had been rejected by a special parliamentary panel, provoking fury from the opposition which accused Berlusconi of riding roughshod over parliament.

Napolitano, whose signature on government decrees is required for them to become law, said in a statement the government had not followed the correct procedures in drawing up the decree.

Berlusconi's decision to try to force the package through on Thursday underscored the growing strength of the Northern League, his main coalition partner, which had threatened to withdraw its support if the measures were blocked.

Northern League leader Umberto Bossi said the government would quickly re-present the decree after making the corrections required by Napolitano, while centre-left lawmakers applauded the president and some called for early elections.

"For the good of the country now we must let the people decide at the polls," said Antonio Di Pietro, leader of the Italy of Values party.

It remains to be seen whether, and how quickly, the government will be able to respond to Napolitano's objections and whether the Northern League will continue to support Berlusconi if the measures appear to be permanently blocked.

Appearing unfazed, Berlusconi shrugged off the president's decision as just "procedural". "It's a procedural thing, it'll go to parliament," Berlusconi told reporters in Brussels.