The Italian government on Wednesday has extended the Italian tax credit for the cinema industry through June 2011, leaving the fate of the tax credit, which offers fiscal advantages to national and international producers, as well as incentives to exhibitors is still up in the air.

The three-year-law was set to expire at the end of 2010 and requires a new parliamentary vote to see its re-confirmation.

Thanks to the tax credit, several Hollywood productions including GK Films’ The Tourist have been able to extend their Italian shoots. The Tourist was able to access the maximum tax credit of Euros 5m.

While the tax credit has certainly increased inward investment, Italy is heavily in debt and the Italian government has been proposing cuts across many sectors, including the arts.

One possible explanation for the extension is that the government has too much on their plate right now to confront the tax credit.

In Rome on Wednesday, a massive student demonstration was underway in protest reforms in their sector, which opponents say puts thousands of jobs at risk and measures up to a ‘privatization’ of universities. The government is also reeling after a violent protest broke out Dec 14, in which an estimated Euros 20m damage was done to down town Rome, when Berlusconi emerged victorious after a parliamentary confidence vote was narrowly won by three votes.

The arts community too, has been protesting proposed cuts to their sector, including one in which the cinema industry workers occupied the opening red carpet of the Rome Film Festival on Oct 28.