Berlusconi Looks To Reduce Italian Tax Burden

by Ulrika Lomas, Tax-News.com, Brussels

04 October 2010

Silvio Berlusconi, the Italian Premier, while winning a confidence vote in the Italian parliament, restated his government’s political agenda for the next three years, including an intention to reduce the country’s tax burden.

After two very difficult economic and financial years for Italy, he gave a commitment to pursue reforms during the last three years of the current parliament. He listed the five areas on which the government would concentrate its efforts in the period to 2013 – the programmes of fiscal decentralization, tax reform, reforms of the judicial system, security and immigration, and a development plan for the south of Italy.

Fiscal decentralization, the first measures for which will enter into force on January 1, 2011, should, he said, be a means of unifying the whole country. Local authorities will be fiscally autonomous and will receive a certainty of revenue directly connected to the area they administer, leaving the central government to pursue national policies. Berlusconi pointed to the experiences of Germany and the United States as demonstrating the benefits of such decentralization of local matters.

He did, however, emphasize that fiscal decentralization did not mean that all the ‘historical’ costs of local services, including their inefficiencies, would be automatically transferred. There will be standard Italy-wide costs established for the provision of essential services, so that the whole country will be able to benefit from more efficient services, of an equal level and quality.

With regard to the taxation moved by fiscal decentralization to the local authorities, particularly that on property, the latter will be closely involved with the checking of local taxpayers’ incomes; and this could result in a substantial reduction in tax evasion. In addition, over time, he expected the reduction in inefficiencies in the provision of local services to also provide a similar reduction in overall Italian taxation.

Such a reduction in the tax burden, he continued, would be the prime objective of the government’s tax reform proposals, which will also attempt to dismantle the “jungle” into which the current tax system has grown since it was first established in the 1960s.

While he reminded members of parliament of the restrictions imposed by a necessity not to add to the current fiscal deficit, he said that the government intended to use the additional revenues from its existing measures against tax evasion, both nationally and internationally, and the normal increase in revenue received as the economy grows, to reduce gradually taxes on families, employment and research. For the corporate sector, the government intends to work on reducing IRAP, the corporate regional tax.

However, he reiterated that every proposed tax measure will need to be supported by a rigorous cost-benefit analysis and the agreement of the European Union, given the size of Italy’s fiscal deficit, as well as its public debt.

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