Tax evasion is a problem which costs Italy around €180 billion a year.  One of the reasons some employers in Italy give for not paying taxes is how much it costs to employ people.  Does it really cost so much to employ people in Italy?  I decided to do some digging and find out.

Here are figures based on data published by Eurostat, the statistics arm of the European Commission on labour costs, as well as information on tax evasion in Italy, the UK, Germany, France, and Denmark.

The figures reference 2004 and 2008 and appear to indicate that Italians who claim labour costs in Italy are excessive simply do not realize how their nation measures up in comparison to other major European nations.  Do you think the figures justify tax evasion which is 30% higher per head than in other major European nations?

It seems Italy’s former Prime Minister Silvio Berlusconi did not know much about the real situation and in 2004 appeared to believe that there was nothing wrong with Italians evading taxes in the event the tax burden exceeded 50%.  He even hinted that it was their moral duty to evade taxes.  As you will probably know, Silvio Berlusconi is no longer Italy’s Prime Minister.

At 43.1% the tax burden is high in Italy, but it is not excessively so when compared to other countries in Europe.

Back to the cost of employing people in Italy.  Research carried out at European level by Eurostat does not appear to support the contention that the cost of employing people in Italy is so incredibly high as to justify massive tax evasion.

Is it true that the cost of employing people in Italy is significantly higher than in other areas of Europe?  The answer is “No, not really”, as the data below shows:

Hourly labour cost comparison, EUR, 2004 and 2008
Data refer to enterprises with 10 employees or more excluding apprentices

Data from Denmark and Bulgaria included for reference purposes.  Bulgaria has the lowest labour costs in the European union and Denmark has one of the highest tax burdens in Europe at 49%.

Country	2004	2008	Difference	2004/2008 Variation %
Italy	22.81	24.86	2.05	9
UK	21.62	21.22	-0.4	-1.9
France	28.67	32.19	3.52	12.3
Germany	Stop reading, start speaking Stop translating in your head and start speaking Italian for real with the only audio course that prompt you to speak. SEE HOW IT WORKS 27.76	29.34	1.58	5.7
Denmark	31.44	36.11	4.97	16
Bulgaria	1.61	2.54	0.93	57.8

What about employer contributions?  Well, they are not low in Italy, nor are they much different from other large European nations:

Structure of labour cost, in % of total labour cost, 2008

Even the Italy’s tax burden does not really serve to justify levels of tax evasion, as the November 2011 The Cost of Tax Abuse research report by UK chartered accountant, tax specialist, and economist Richard Murphy who writes the Tax Research UK blog demonstrates:

Per Capita Tax Evasion in Italy

On the basis of the data, the French, with their higher level of contributions could justify hiding earnings from the tax-man, but levels of tax evasion in France are not as high as in Italy, as this table complied using Murphy’s research showing per capita tax evasion levels demonstrates:

The figure for Denmark is surprisingly high (I’m checking its accuracy) and makes Italians look almost virtuous.  Murphy has confirmed the veracity of his figures, but I’m now wondering whether the Danish figure is due to a currency conversion error.  I’m checking this and will update when I know.

What is clear is that anti-evasion systems in the UK are much more effective than in France, Germany, Denmark and Italy.

Other reasons I often hear from Italians to justify not paying taxes are excessive bureaucracy and the concern that their money simply is not being used wisely by Italy’s rag tag bunch of politicians.

Regardless of the excuses, it does not look as if Italians really do have a genuine reason for dodging taxes.  There are plans for a clamp down on tax evasion in Italy too.  Italy often plans, but rarely acts.

What do you think?  Do the figures surprise you?