Sunday, 21 October 2007

Who Is Going to Pay the Budget Bill?

(Photo: Più tasse ?, by Blese).

Saturday, September 30th, the Italian Government approved the budget bill for 2008.

The lion’s share of the bill consists in lower expenses: 11 billion euros. In addition to this, 7.54 billion euros come from unpredicted income taxes in 2007. Here are the main measures: the bill sets lower taxes on businesses, since IRES drops from 33% to 27.5%, while IRAP drops from 4.25% to 3.9%. This shouldn’t imply any real increase in public expense since contribution base should grow as well. A 2 billion euros tax cut concerns private properties, another 2.08 billion euros cut concerns the slightening of pension reform and some work benefits, while a 2.77 billion euros cut concerns lower taxes on poorest families (lastampa.it).

Presenting the bill at the Senate, the Finance Minister Mr Tommaso Padoa-Schioppa remembered the huge limits of the financial public context: the Italian debt is the biggest in Europe and the third in the world, 1,600 billion euros that every year force Italy to find 70 billion euros to pay interests; besides, tax evasion is between 75 and 90 billion euros per year, more or less 5 or 6% of the gross domestic product (ilsole24ore.it).

Foreign newspapers acknowledged Mr Romano Prodi’s success in keeping together his heterogeneous nine-party coalition, and analyzed Italy’s accounts. In 2008 deficit will fall to 2.2% of GDP (estimated 2.4% in 2007 and fixed to 4.4% in 2006). Public debt is bound to fall to 103.5% of GDP (105% in 2007 and 106.8% in 2006). While struggling against tax evasion is highly unpopular, a lower growth in Europe could weaken the Government’s financial strategy. GDP growth prevision for 2008 has been reduced to 1.5% from the previous 1.8%, while Italy stands at the bottom of the growth scale in Europe (ft.com and wsje.com).

That’s why the rating agencies Fitch and Moody's were critical about the budget bill: Italy should focus on cutting down public debt, before growth soon ends up (ilsole24ore.it).

European Union’s Finance Minister, Mr Joaquín Almunia, said that Italy should reduce public expenses and public debt, which every year demands 4.5% of the GDP in interests (corriere.it).

The International Monetary Fund reported as well that Italy should use unexpected incomes to reduce public debt, while according to its figures the growth for 2008 will slow down to 1.3% instead of the previous 1.7% estimate (corriere.it).

Many economists and observers pointed out the same critics. According to Mr Mario Monti, the budget bill satisfies many different social categories, but it menaces young citizens because it doesn’t cut the debt (corriere.it). Moving along the same lines, Mr Innocenzo Cipolletta reported that since this bill tries to make everybody happy, it doesn’t really make anybody happy (ilsole24ore.it).

Mr Oscar Giannino accused the Government of having deliberately reduced its income forecasts to lenghten public expense: unexpected higher tax incomes would not be the result of the struggle against tax evasion, but simply a smart invention of the Finance Minister (libero-news.it). Mr Tito Boeri came to the same conclusion: in spite of the appearance of higher tax incomes, public expense is still growing. 23% of the Italian public budget is dedicated to local administrations, 18% to pay interests on public debt and 15% to pay pensions. No steady growth will ever be possible if the Government doesn’t cut those expenses (lastampa.it).

Mr Lorenzo Bini Smaghi said that in 2008 Italy could make deficit/GDP ratio fall to 1.8% instead of the 2.2% Government current target. The highest efforts have been put off to 2009 and 2010, when growth won’t probably be so strong as it was during the last couple of years (lastampa.it).

So the Government didn’t cut public expenses enough. But who gets more benefits from the 2008 budget bill? Tax reduction on businesses is huge and silent. Last May, the President of Confindustria Mr Luca Cordero di Montezemolo said that enterprises were ready to change their 5 billion euros public financial incentives per year into an equivalent tax reduction (ivi, June 9th, 2007). Actually, with this budget bill businesses get a tax cut of about 20% and, at the same time, they still keep all their annual public incentives (corriere.it).

Moreover, the announced property taxes reduction will benefit richest families. At the beginning, the measure should concern only people with an annual income lower than 50,000 euros. But then a Parliament emendation has removed the cap previously fixed by the Government (consulenzaimmobiliare.org). The Center-Left Government is now making real what Mr Silvio Berlusconi proposed the last night of 2006 general elections (tgcom.mediaset.it).

What about taxes on work, then? 80% of total Irpef income, the main tax on individuals, is paid by subordinate workers, who are unable to evade paying taxes (corriere.it). Obviously, Irpef won’t be reduced. In Italy, if you work every day, but you are not an entrepreneur and you do not possess any property, the budget bill for 2008 won’t give you any tax reduction at all. Anyway, you can probably take comfort thinking that your personal stake of the public debt is just about 25,000 euros (1,600 billion euros divided by more or less 60 million citizens).

“– Non è proprio il caso d’essere invidiosi, compagni. Le dacie sono ventidue in tutto, e ne verranno ancora costruite soltanto sette, mentre noialtri al MASSOLIT siamo tremila.
– Tremilacentoundici – sentenziò qualcuno da un angolo.
– Ecco, vedete, – continuò il Capitano – che ci si può fare? E’ naturale che le dacie le abbiano ricevute quelli che tra noi sono dotati di maggior talento… –
– I generali! – lo sceneggiatore Glucherëv si buttò a capofitto nel pettegolezzo.”


[– No reason to be envious, comrades. Dacias are twenty-two in all, and just seven more will be built, while we are three thousand within the MASSOLIT.
– Three thousand hundred eleven – sentenced someone in a corner.
– So there! You see, – went on the Captain. – What can we do? It’s natural that dacias were given to those between us who have more talent… –
– The generals! – The screen-play editor Glucherëv plunged himself into the gossip.”]


(Michail Bulgakov, Master I Margherita, 1969).

2 comments:

ariafritta said...

About economical situation in Italy, I suggest to read this article:
http://eddyburg.it/article/articleview/9956/0/20/

(sorry, it's in Italian)

Edm said...

@ariafritta: I read the suggested article by Nicola Cacace. It's very interesting and rich of relevant figures. Let's quote it: "in dieci anni la ricchezza (case, titoli e moneta) del 10% delle famiglie più ricche è passata dal 41% al 48% della ricchezza nazionale" [in ten years, the richness belonging to the 10% of the richest families (buildings, documents and cash) went from 41% to 48% of the whole national richness].
I think that sharing richness is as much important as producing more richness. As a consequence, I do completely agree with those who ask to increase taxes on personal property from 12,5% to 20%.
I'd like to read "Il liberismo è di sinistra", by Alberto Alesina and Gianfranco Giavazzi, and get a personal opinion about their thesis.

Nice to see you. Thanks.