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Italian Business Demands Changes To Crisis Budget

by Ulrika Lomas,, Brussels

29 August 2011

In its testimony to the Senate commission that is reviewing the crisis budget measures put forward by the government to accelerate the balancing of the country’s budget by 2013, Confindustria, the Italian business federation, has said that they need to be improved, so as to reinforce the country’s credibility on the financial markets.

According to Giampaolo Galli, Confindustria’s general manager, the government will need to act quickly to re-establish market faith in the country, as Italian credit risk is still perceived to be high. The package of measures, he said, needs to be made more credible, including policies to encourage growth in the economy.

In the latter respect, the recommendations proposed by Confindustria have not changed. It has always maintained that a redistribution of tax burdens away from employers and employees should be recognized to be at the centre of Italian tax reform, so as to produce a stronger recovery from recession, together with increased employment and investment.

Apart from taking further action to reduce tax evasion, Confindustria urged that the budget measures should include an immediate increase in the rate of value added tax (VAT). It is looking for additional revenues of EUR15bn (USD21.7bn) in the overall package which would allow a start to be made in reducing individual and corporate income tax rates.

Galli said that an increase of 1% in the general VAT to 21% would provide around EUR3.7bn annually to provide for that process to begin, as it would not, if balanced by a reduction in tax burdens, have a depressive effect on Italy’s economy.

He also described the ‘solidarity tax’, of an additional 5% on annual personal incomes higher than EUR90,000, and 10% on annual incomes over EUR150,000, as “profoundly unjust as it is levied on those who declare all of their income and are already taxpayers, and not on those who are truly rich.” Therefore, he added, we believe that “it would be less inequitable to impose a progressive wealth tax.”

The solidarity tax is also under attack from other quarters. In fact, the parties within the governing coalition, with Premier Silvio Berlusconi taking the lead, now appear to be looking to introduce the tax at EUR150,000, if family tax allowances are taken into account, or at EUR200,000 if not.

In a similar fashion, Confindustria’s opinion is that, rather than being increased, the ‘Robin Hood tax’ on energy companies should be eliminated. Galli pointed out that the effect of the increased tax will be to produce a further rise in energy costs, which will further reduce Italian industrial competitiveness. Obviously, in that case, Galli was completely against the proposals, from other quarters, to extend the Robin Hood tax to other sectors in the economy.

Overall, it is being seen that there are on-going negotiations regarding all of the measures within the budget package, and it is therefore extremely difficult to foresee what measures will be included when the package finally emerges from the parliamentary process. It can only be said that all parties seem to agree that the budget’s overall fiscal effect of balancing the country’s deficit by the end of 2013, at least, should not be weakened.

TAGS: tax | economics | business | value added tax (VAT) | fiscal policy | energy | budget | tax rates | Italy | tax reform | individual income tax

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