The Italian film industry has lost almost 50% of its state funding for local production, following an announcement by cultural minister Giuliano Urbani. The cut, from Euros 97.5m in 2001 to this year's budget of Euros 55.5m, is part of a widespread reduction in government funding for entertainment.

Urbani said the budget cut was an "emergency measure" needed to meet the increased costs of new live theatre regulations. While cinema suffered the greatest budget cuts of all the arts, the traditionally under-funded theatre industry has seen its budget increase from Euros 88.5m to Euros 120m.

Overall, including all cuts and increases combined, government funding for the entertainment industry is falling by Euros 15.5m for 2002. Urbani said he would attempt to recover this amount, which would then be divided between film and opera. The budget for opera has been cut by just Euros 7m, to Euros 240m for 2002.

While the cuts are certain to provoke outrage within the local film industry, Silvio Berlursconi's government will hope to redress the balance by pushing ahead with plans to introduce a tax shelter and other financial incentives aimed at attracting private investment in the local industry.

Last week, government minister Gabrielle Carlucci presented parliament with a draft paper on proposed tax shelters. The initiative, launched by film body Anica during last year's Venice Film Festival has received enthusiastic support from local producers.

The Italian government currently allocates funds to a selected number of projects on the basis of a film's "national cultural interest" - a system which has been criticised for mainly supporting uncommercial films that go on to perform badly at the box office.