Tremonti Revisits Tax Reform, No Hasty Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

02 February 2010

Giulio Tremonti, Italian Minister of the Economy, has repeated his belief that, not only in Italy but also in Europe as a whole, the correct policy to follow now is one of substantial and studied tax reform, rather than sporadic small corrections within the existing fiscal system.

During his contribution to a video conference organised by the Italian newspaper, Il Sole 24 Ore, he also reiterated his view that the Italian tax system is extremely complicated, caused by various past adjustments that have accumulated over the years. A period of time should be allowed to study the changes necessary to bring that system out of the 1960s and up-to-date, he said.

In his opinion, therefore, the required fiscal reform will involve structural changes to the tax system, and not just the tax rate reductions that are being requested by certain commentators.

Although he is aware that the present high income tax rates go some way to explain the incidence of tax evasion within Italy, any reduction in tax revenue would, in any case, be extremely difficult to afford at the moment given the level of Italy’s public debt – the third largest in the world – and the current difficulties in financial markets, where Italy will have to issue government securities of up to the equivalent of EUR2bn (USD2.75bn) every working day this year.

With regard to the tax cuts that have been suggested, he emphasised the difficulty of eliminating IRAP (the regional corporate tax). The problem, he said, is not whether the incidence of IRAP can be justified or not but that, as it provides some EUR40bn to the government’s coffers, savings would have to be made elsewhere to accommodate such a loss of revenue. It would be the equivalent, it was said, of cutting out more than Italy’s current spending on its health services.

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