Tremonti Sees Italian Tax Reforms By 2013

by Ulrika Lomas, Tax-News.com, Brussels

20 January 2010

Italy’s Minister of the Economy, Giulio Tremonti, has confirmed that the government’s fiscal reforms will require a number of years to be effected. To be precise, he is talking of the period between the regional elections this year and the general election due in 2013.

In recent days he had pointed out that the Italian tax system is extremely complicated, caused by various past adjustments that have accumulated over the years. It is, he said, a system that has been patched up over time, become unjust and irrational, and needed to be changed. However, that change could not happen in the short-term; it needed to be studied and debated by all sectors of the economy before any action would be taken.

During a subsequent newspaper interview, he has reiterated that the Italian fiscal system was designed in the 1960s and, since then, has been constantly patched up. In substance, he said, it reflects a world that no longer exists – for example, the economy’s production is now based on small and medium-sized businesses, rather than large companies; there are now 8 million value added tax transactions in Italy; and, whereas before there were more young people than pensioners, now it is the contrary.

As another example, he had previously counted that Italian personal income tax (IRPEF) alone has a plethora of possible detractions and deductions. He detailed that, within the three levels of taxation – the basic tax, plus regional and local taxes – there are 134 possible reductions, including 18 deductions, 39 detractions, 31 tax credits and 46 exemptions and subsidies.

He was of the opinion that the complexity of the current tax system led, in large part, to the lack of incentive for Italians to pay their taxes. Furthermore, Italian taxpayers see no link between their taxes and government spending. For example, in Italy, local taxes do not directly finance local spending, as they do in the rest of Europe.

He was also able to stress that he did not believe that the government would be able to afford tax cuts in the near future. Such cuts would, in any case, have to be considered in the light of Italy’s budgetary deficit. In a situation where Italy will have to issue debt in the amount of EUR485bn (USD700bn) in 2010, or up to EUR2bn every working day, he could only say that the government would look to use any unbudgeted funds garnered from an economic recovery, reduction in government spending or the fight against tax evasion, to reduce the tax burden.

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