If it actually materialises, Italy’s government plans to implement a package worth €36 billion in an attempt to kickstart the nation’s stagnant economy. If all goes according to plan, around 800,000 new jobs will be created over the next 3 years, or that is what Economy Minister Padoan hopes will happen.
While the cost of the manoeuvre is raising eyebrows, Italy thinks it can afford it despite being up to its eyeballs in national debt. Today, details exactly how the manoeuvre, which contains €18 billion in tax cuts, will be financed should be revealed. In Brussels, EU mandarins will be watching carefully and will also be pawing over Italy’s proposal to understand whether the money to finance it exists. Italy’s economy minister claims the money is there.
If the cash is not, there is a possibility that Brussels will put the brakes on Italy €36 billion plan and say, “Sorry Mr Renzi, but the figures don’t add up”, and Italy will more or less be ordered to revise them. On the other hand, the Italy’s EU overseers may say that everything is in order and let the Boot proceed as planned. For now though, Italy is moving its plans ahead and seems to be praying that EU will not scupper them.
Assuming that the EU does rubber stamp Renzi’s master manoeuvre, the tax burden in Italy might fall. Just who will benefit depends on whether those concerned are self-employed or in full time employment. Whichever category they fall into, only low earning Italians are likely to feel the benefits of the proposed tax cuts, if that is, they actually happen.
Situation Uncertain for Italy’s Self-Employed
Italy’s self-employed should benefit from the proposed tax cuts, but only if their earnings are below €15,000 a year – which is very low. Some of the people earning less than €15,000 may need the tax cuts to stay exactly where they are today. Why? Because those Italians exploiting something known as the ‘regime dei minimi‘- a simplified tax regime for the self-employed – will face a hefty tax rise. Indeed, their taxes will triple in 2015 from 5% to 15%. Pensions contributions for those earning €15,000 will rise too, and continue to do so until 2018. For Italy’s lower earning self-employed, there’s a risk that the cuts will make very little, if any, difference to their earnings. On a more positive note, life may become slightly simpler for anyone in Italy saddled with a VAT registration.
Possible Benefits for the Employed
Lower earning Italians still lucky enough to find themselves with jobs many benefit from this year’s €80 a month tax rebate becoming a permanent fixture. On top of the €80, Italians may also soon be able to opt to receive statutory severance pay (TFR) in advance, though this is only likely to benefit lower paid workers in Italy seeing as those earning more than €20,000 will be walloped by higher taxes.
Benefits for New Mothers – The Baby Bonus
While not contained in the announcement of the €36 billion budget package, yesterday, Italy’s prime minister stated that mothers with very young children would also receive an €80 a month allowance. Mothers who give birth in 2015 will be eligible for the benefit and will receive it for three years. Families with annual incomes of over €90,000 may not receive the payment. Details of the baby bonus have yet to emerge and it remains no more than a proposal for now.
Potential Benefits for Employers
To generate the 800,000 new jobs Italy’s economy minister hopes will materialise, the €36 billion package may also contain a prevision to lower contributions to zero for businesses which take on new staff, but only if they are taken on permanently and not as contract workers. Contributions should stay at zero for three years, though this may change. This aspect of the budget may be reinforced by the Jobs Act bill which should make it easier for companies in Italy to hire and fire.
The Mysterious Elimination
The budget law proposal also contains an entry marked the ‘Elimination of New Taxes’. €3.0 billion is to be used for this. Which ‘new taxes’ are to be eliminated? Nobody yet knows. Mysterious.
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.
As often seems to be the case in Italy, tax cuts tend to be countered by rises in other taxes meaning that overall, things stay the same. This time round, we’ll have to wait for definitive word on the contents of Italy’s budget to be sure.
Cutting Tax Evasion Ever So Slightly
Another aspect of the €36 billion package which is designed to help keep taxes down, is a crack down on Italy age-old problem of tax evasion.
Apparently, Italy hopes to recoup €4.8 billion in evaded taxes. While that might sound like quite a high figure, you should know that Italians reputedly evade somewhere in the region of €180 billion a year. In terms of clamping down on tax evasion, Italy could do much better. If it did, substantial, and real, tax cuts could be implemented.
By way of an aside, to this Italy watcher, it looks as if Italy may be gradually moving in the direction of introducing harder to evade taxes in the form of taxation tied to property ownership. The fear is though, that the increases in property taxes may effectively cancel out the decreases in other taxes.
The Spending Review
Also helping fund the tax cuts which might not, is the implementation of a €15 billion spending review. Italy’s regions are to bear the brunt of this and are already up in arms over it. Prime Minister Renzi has more or less told Italy’s regions to shut up and cut, but they will continue to moan and groan. Italy’s Venice region is somewhat miffed about being told to implement cuts because its accounts are more or less in order and it may mount a legal challenge to the ordered cuts.
In areas in which Italy really could do with investing more, it isn’t going to. Education is to receive a paltry €0.5 billion. The development of high speed internet infrastructure will generate an estimated €0.6 billion in income for Italy’s government – if, that is, anyone bothers to develop it. The investment in internet infrastructure in Italy is by means of tax credits, though who will qualify for them, and for doing what, is not clear. Research and development is to receive the rather lowly sum of €0.3 billion. Lastly, Italy’s snails pace justice system stands to receive just €0.25 billion.
To be fair, Italy does not have that much cash to play with, so any investment is better than none.
Italy is now waiting patiently to hear the details of the budget package. If everything looks OK, the package should be approved before Christmas. The proposed changes will not be implemented in one hit. Instead, Italy’s government will introduce each of them bit by bit and what actually ends up being introduced may not be exactly the same are the proposals outlined here.
Source: LEGGE DI STABILITÀ 2015 – 2015 Budget Press Release by Italy’s Government – in Italian