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Italian Public Audit Office Alarmed By Excessive Taxes

by Ulrika Lomas,, Brussels

04 October 2012

During recent parliamentary testimony, the President of the Italian Public Audit Office, Luigi Giampaolino, has called the government’s reliance on additional taxes and austerity, to correct the country’s fiscal deficit, a "costly and inefficient therapy".

While the doses of tax increases and spending cuts have, he said, not even offered the certainty that the government’s objective of balancing Italy’s fiscal deficit by the end of next year will be attained, Italy is now confronted by a situation where the economy itself is unable to “support the weight” of the burden placed on it.

The government’s urgency to introduce additional tax measures (for almost 70% of the funds required in 2013), to correct the deficit has, he added, produced the “perverse effects of a short circuit between fiscal tightening and economic growth”.

According to the Public Audit Office, the deepening of the Italian recession “has prevented the obtaining of the government’s revenue targets, notwithstanding the significant tax rises that it has tried in order to compensate for the cyclicality of revenue”. In addition to the worsening recession, he said the government “wants us to die of taxes”.

Giampaolino pointed out that it is now expected that, in 2013, tax revenue will be more than EUR21bn (USD27.1bn) less than had originally been forecast, and expected falls of EUR7.4bn in direct income taxes and EUR2.3bn in social security contributions are a direct consequence of the deepening economic recession.

Furthermore, with total Italian tax burdens reaching 55% (if the underground economy is subtracted from gross domestic product), family expenditure had fallen by 4% by the middle of this year – a statistic that, according to Giampaolino, is likely to worsen further in the remainder of this year and the first part of 2013.

In brief, he concluded, the Monti government’s cure is not working. "Not only is it failing to sort out the fiscal deficit, but it is depressing family consumption and savings that are seen to be throttled by taxation”.

A quick reply to Giampaolino was, however, attempted by the Economics Minister Vittorio Grilli, in which he declared that to produce economic growth without first curing Italy’s fiscal deficit would be like “constructing a house on sand”.

TAGS: tax | economics | fiscal policy | Italy | revenue statistics | individual income tax

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