Italy heading for yet another delay on tax policy - source
* Govt vowed to overhaul property tax (IMU) by end-August
* Berlusconi says govt survival depends on scrapping IMU
* Cancelling both IMU and IVA would cost 8 bln euros annually
ROME, July 22 (Reuters) - Italy's fragile coalition government is likely to postpone again a decision on reforming a hated housing levy and freezing sales tax, a government source said on Monday.
In May, the June payment of the levy on first homes was pushed back until the end of the year, and a scheduled value-added tax increase was delayed until October from July.
The coalition's number crunchers, who are scheduled to meet Economy Minister Fabrizio Saccomanni later on Monday to discuss what to do about the taxes, are expected only to agree on putting off a decision in the face of intractable political disagreement, the source said.
"The temporary solution is still on the table," the source told Reuters just hours before the meeting.
Though the government has said it will seek an agreement to overhaul the property tax system by the end of August, several official sources have said it may delay the decisions with the aim of finding a permanent solution in the 2014 budget.
Prime Minister Enrico Letta has struggled to balance the demands of his own centre-left Democratic Party (PD) and four-time Prime Minister Silvio Berlusconi's centre-right People of Freedom (PDL) since forming his government in April.
The two parties were bitter rivals until backing a grand coalition in a desperate bid to break a prolonged political deadlock following an inconclusive election in February.
The government's intractable challenge is to stimulate growth in the euro zone's third-biggest economy to combat its longest postwar recession, without pushing up deficit spending.
Italy's huge debt far exceeds annual output and it is being closely watched by the European Union to ensure it does not break budget limits.
In addition, some economists doubt whether scrapping the housing levy and freezing IVA will in fact boost growth.
"I wouldn't expect any significant benefit on growth or consumer sentiment," said Marco Valli, chief euro zone economist at UniCredit in Milan.
The PDL, which made abolishing the property tax its central electoral plank, says the government's survival hinges on removing it completely. The PD, on the other hand, has called for it to be scrapped only for medium to low-earners.
The annual cost of eliminating IMU and keeping steady the IVA rate, now at 21 percent, is estimated at about 8 billion euros ($10.51 billion), and Saccomanni has said he does not know how to cover such a big revenue shortfall.
Both tax increases were put in place by Letta's technocrat predecessor, Mario Monti, who imposed tough austerity to pull Italy back from the brink of default when the euro zone debt crisis was white hot at the end of 2011.
The opposition has fiercely criticised Letta's government for doing little except keeping power in the hands of the country's traditional parties, and the government's delaying tactics have been targeted by satirists.
Earlier this month, a vignette on the front page of Italy's most influential newspaper, Corriere della Sera, depicted the bespectacled prime minister proudly calling himself "Enrico Slitta" or "Enrico Postpones", a play on the premier's name.
Last week, Saccomanni sent out mixed signals about possible share sales in state-owned companies like oil group Eni and aerospace group Finmeccanica, suggesting further indecision in the coalition.
But by Italian law, funds from stake sales can be used exclusively for debt reduction and not for current spending.