By Naomi O'Leary
ROME, Feb 19 (Reuters) - As Italy's parliamentary elections approach, the parties battling to win over undecided voters are focusing increasingly on tax, the issue that polls show matters most to an electorate struggling after more than a year of austerity.
Former prime minister Silvio Berlusconi has singled out the hated IMU housing tax as the centrepiece of his campaign, promising not only to abolish it but to refund last year's payments in cash at post office counters.
He has also said he would like to introduce a general amnesty on penalties for people who haven't paid their taxes, a measure he says will encourage late-payers to come forward but which his opponents say is tantamount to encouraging evasion.
It is a strategy that has drawn condemnation from rivals, including outgoing Prime Minister Mario Monti, who introduced the IMU tax as he battled to gain control over the debt crisis left behind when the last Berlusconi government left office.
But rising opinion poll ratings for Berlusconi's bloc suggest his ideas have resonated with voters, as they did in 2008 when a similar pledge to scrap an earlier version of the housing tax was widely credited with helping him defeat centre-left leader Romano Prodi.
'Those who don't pay are right,' said Maria, a retired school teacher in Rome, who declined to give her surname for fear of prosecution by Italy's financial police. 'We all know what it's for. It's so that impostor Monti can pay off the debts of his banking friends, who wrecked the economy.'
The last opinion polls published before a pre-election blackout suggest the centre-left is still leading Berlusconi's centre-right bloc. But as many as 30 percent of voters are still undecided ahead of the election on Feb. 24-25, according to pollsters.
Italian taxpayers have the fourth heaviest tax burden in the 34-member Organisation for Economic Cooperation and Development, behind only Denmark, Sweden and Belgium, according to the latest figures from the Paris-based group of rich countries.
Although the IMU tax on property owners' primary residences, set at 0.4 percent of the value of a home, is comparable to other property levies across Europe, it arouses a near-allergic reaction in Italy.
'The house is sacred. It should not be taxed,' Berlusconi has repeated relentlessly in his daily television and radio appearances.
Berlusconi says the tax raises just 4 billion euros, a sum that could easily be raised by cutting spending in other areas such as state funding to political parties.
Although other parties have attacked him over the details of his plans, the two other main blocks in the election - the centre-left and even Monti's centrists - have since said they would look into cutting back the tax.
After more than a year of the austerity imposed by the Monti government, eight in ten Italians want taxes to be cut, according to a poll from the Eurispes institute.
According to a separate survey last month by the SWG polling institute, 28 percent of voters would like to see the next government lower IMU immediately, the same number that would like to see income tax go down.
With Italy's public finances weighed down by a debt equivalent to more than 126 percent of gross domestic product and memories of last year's market crisis still fresh, the scope for cutting taxes is extremely limited.
And in a country that has long had an ambivalent relationship with the taxman, the next government will face heavy pressure to address the chronic problem of tax evasion, which economists say cost 120 billion euro a year.
High taxes, combined with a perception that public services are inadequate, has been 'an incentive to evasion' according to LUISS University tax law professor Livia Salvini.
The state has also mishandled collection by making it complicated to pay taxes, passing a multitude of sometimes-contradictory laws, and granting repeated amnesties for evaders, she said.
Decades of incessant political corruption scandals have hammered in the message that taxes are ill-used, worsened by a widespread perception that public services are inadequate.
'Taxes must be lowered, but above all they must be spent better. They have been wasted in the past,' said publisher Gian Claudio Pitorri, 60.
(Editing by Andrew Heavens) Keywords: ITALY VOTE/TAX
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