Prodi Pledges To Cut Italian Firms' Social Security Burden

by Ulrika Lomas, Tax-News.com, Brussels

21 March 2006

Romano Prodi, leader of Italy's centre-left opposition coalition, has pledged to cut social security and other employee levies borne by the nation's firms by 5% in the first months of a new government, if he defeats Prime Minister Silvio Berlusconi in April's general elections.

"Our programme foresees the cut of 5 percentage points in the first year. I hope it is possible to go further but at the moment we can't give any assurance on this," Prodi told an employers conference, according to reports.

However, with Italy continuing to struggle to keep its finances in order, Prodi's proposals have been rubbished by his political opponents, who fear the measure would be impossible to fund.

"If Prodi claims he can reduce taxation by 5 percentage points, which requires a 10 billion euro funding, he lies, and he knows he is lying", remarked Foreign Minister and National Alliance president Gianfranco Fini, according to the news agency AGI.

"With the current financial situation retrieving 10 billion euro is impossible for anyone," he added.

Nonetheless, ‘tax wedges’, or the difference between what employers pay out in wages and social security charges and what employees take home after tax and social security deductions, have been falling steadily in many OECD nations in the last seven years.

The OECD’s recently-published study entitled ‘Taxing Wages’, reports that the tax wedge for a typical married production worker with two children, as a percentage of the overall cost to the employer, has declined by around 1.5% over the last seven years across the 30 member countries of the organization.

The largest beneficiary of this trend has been Ireland, where between 1996 and 2003 there was an 18.3% reduction in the tax wedge, representing the biggest fall of all the nations featured in the report. Other significant decreases were seen in Hungary (9.9%), the United States (8.3%), Italy (8.2%) and the UK (7%).

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