Poor Italy

The Owner of this Floating Gin Palace Earns €20,000 a year. Not.

Italy is a very poor country.  Maybe Berlusconi can be blamed, but not necessarily.  Why?  Because less than 800 Italians manage to earn more than one million Euros a year.  In fact, according to an article in Italian newspaper Il Corriere Della Sera today, only 796 Italians tell Italy’s taxman they make more than a million.

Why is the figure so low?  Is Italy really that poor?  Of course not!   It is because levels of tax evasion in Italy are incredibly sky high.  Italians are allergic to paying taxes (partially because they do not trust those who manage public funds).  Tax evasion, not football, is Italy’s national sport.

In 2009, it was estimated that Italians avoided paying around €100 billion in taxes.  That figure had grown to at least €120 billion in 2010.  Some estimates believe the true figure is more than double.

How Many Italians Earn Over One Million?

How many Italians should be earning over €1,000,000 a year?  Around 15,000 or so according to a few quick and dirty calculations based on the situation in the United States of America – a country where the taxman has very sharp teeth, and, as American expats in Italy will know only too well, very long arms.

The blog My Budget 360 references US Social Security statistics which show that in the USA in 2010, around 78,147 Americans earned more than $1,000,000.  Now, the population of the USA in 2010 was 308,745,538.  Divide 78,147 by 308,745,538 and you discover than around 0.025% of Americans earn $1,000,000, or more, a year.

Let’s, for the sake of argument, apply this percentage to Italy’s population.

In 2010, Italy had a population of 60,626,442.

0.025% of 60,626,442 is 15,157.

What this means is that around 15,000 Italians may be earning over €1,000,000 a year, if we use the US percentage as a basis.  Yet only 796 are telling the taxman this.  By the way, Italy is the 7th richest country in the world.

According to an article in The Telegraph which compared Britain’s tax rates with those of other countries, wealthy Italians get to keep 54.1% of their earnings, which means the Italians who are not declaring million Euro plus incomes are keeping around €459,000 each – probably much more, as some will be raking in a lot more than measly a one million annually.  Multiply that figure by 15,000 and you have a conservative estimate of €6.8 billion that is not ending up in government coffers.  That’s a relatively significant sum, is it not?

Hen’s Teeth

Italy is going through the throes of putting together an austerity package and a clamp down on tax evasion is high on the agenda.

Anti-tax evasion ads are already appearing on Italy’s television screens and this public service advert labels Italy’s tax evaders as parasites:

[youtube]http://www.youtube.com/watch?v=FV10PX1nMZM[/youtube]

Will Italy really do something about its laughably high levels of tax evasion?  Well, let me answer that with a another question: How often have you seen a hen with teeth?

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