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What Does 2012 Hold for Italy?

The New Year is now upon us.  What will 2012 hold for Italy?  Here are a few predictions.

Over all, things are not looking too good for Italy’s population and their bank account balances are likely to suffer in 2012.  Fuel costs are up, gas and lighting prices have risen as well.

Adding to the increase in the cost of living is a revised property tax introduced by  Monti’s austerity package which will lead to tax payments on Italian’s formerly exempt first homes.  There are around 3.5 million houses in Italy which are used as holiday homes or for renting out to tourists.

War has been Declared on Italy’s Tax Evaders in 2012

The peninsula’s New Year’s resolution to itself is a widespread clamp down on tax evasion.  The clamp down is being supported by a public awareness campaign sponsored by Italy’s government.

In one television anti-evasion ad, tax evaders are labelled as parasites on society.  Another, more recent televised public information advertisement points out that Italians cannot expect good quality services if they don’t pay taxes.

New systems, such as the “incomemeter” and electronic money will see the light of day in 2012, as the crack down on tax evasion commences.

Italy’s tax people claim they now have the means and the technology to ensure Italians donate the correct amount of their earnings to tax coffers.  War has been declared on Italy’s tax evaders and the forthcoming battles are likely to be bloody.

Whether making Italians cough up will actually benefit Italy remains to be seen.  The crack down may bring about a change on certain aspects of Italian culture, though.

Fiscal Facebook Profiles for 2012

One of Italy’s biggest problems – actually getting its population to pay taxes  – is to be tackled in 2012.  To ensure secret sums are revealed, and taxed appropriately, banking secrecy has been official removed.

Italy’s fiscal authorities will now be able to delve into bank accounts in order to discover where money is coming from and where it is going.

Ultimately, Italy will have a kind of fiscal Facebook equivalent with profiles on all its users.  These profiles will help the authorities understand, for example, how Italian jewellers who declare an average annual income of €16,000 and bar owners with incomes of €13,000 can possibly afford two houses, an apartment in Nice, a BMW X5, three holidays in the Maldives every year and keep their children in private universities for up to ten years.

The fiscal Facebook may mean that establishing true earnings levels for certain categories of businesses in Italy will become more feasible and accurate.  Honest businesses should have nothing to fear, of course.

The Beginning of the End of Italy’s Cappuccino Culture in 2012

Lavazza Coffee
Will 2012 dent Lavazza Coffee Sales?

The tax evasion clamp down is all well and good, but it could have a potentially disastrous effect on Italy’s already fragile economy.

One local bar man told me that the price of espresso, currently 90 Eurocents to €1, may well double in 2012.  The logic behind doubling the price of a cup of coffee is that if all taxes have to be paid as demanded and nothing can be evaded, income levels will fall drastically.  To keep Italy’s coffee bars generating cash and maintain the owners’ lifestyles, prices will have to go up.  If prices do go up, demand will fall and many Italians will may well forego their thrice daily visits to the bar for an espresso or a morning cappuccino.  And lunching in one of Italy’s many hundreds, if not thousands, of bars will become more expensive if receipts have to be issued for virtually every mouthful.

This leads to another a prediction for 2012, some, perhaps many, of Italy’s multitude of little bars will will lower their steel shutters for the final time.  Those which stay open will charge higher prices.

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Italy’s cappuccino culture’s days are numbered, it seems.

Hyper Inflation in Italy in 2012

Making Italian pay taxes could lead to hyper-inflation as businesses attempt to keep income at the same level as it was when they were routinely under declaring taxes.  The effect this could have on Italy’s economy could be devastating.

The owners of businesses who attempt to live with the new tax regime may find themselves with less money to spend and their consumption will fall.

Sales of Luxury Cars will fall in Italy in 2012

Bar owners and jewellers and all the other Italians who suddenly find themselves facing much higher tax bills may well cause the sales of luxury cars to fall in Italy in 2012 as the effects of the anti-evasion measures start to bite.  If consumption levels fall drastically, Italy’s tax authorities may get cold feet and decide to take a more lenient approach to enforcement.  This, however, is what got Italy into trouble in the first place.

Income Tax Levels Will not Fall in Italy in 2012

The only way to offset the potentially negative effects of a tax evasion clamp down is to give Italians more to spend – and one way of achieving this is to lower income tax levels.  Though this may not happen in 2012, it may happen eventually  – once Italy’s debts have been brought under control.

The Government may Help Earnings in Italy Go Further

Another way of increasing the spending power of Italians is to increase salary levels and to ensure more Italians have jobs.  The latter appears to be what Prime Minister Mario Monti is aiming to do.

Monti will also be hoping that by liberalising certain business sectors, prices can be lowered.  Certain prices in Italy are artificially high.  Once example which I’ve already written about is that of the cost of headache pills.

More Jobs for Italians in 2012?

Monti also wants to make it easier for businesses to employ Italians and, at the same time, easier for the same businesses to rid themselves of under-performing employees.

To achieve this objective, Monti has begun a dialogue with Italy’s unions.  Monti’s task will not be straightforward as Italy’s unions are worried about the exploitation of workers by unscrupulous employers who will use the ease with which they can fire somebody as a kind of sword of Damocles.

Increased Social Tension in Italy in 2012

Unions in Italy are predicting ‘social tension’ – read riots, strikes and mass demonstrations  – if proposed new legislation designed to free up Italy’s job market does not give Italian workers some level of protection.

At present, Italian workers tend to enjoy far too much protection  – courts in Italy invariably find in favour of dismissed employees, I’ve been told and this makes sacking unproductive employees in Italy nigh on impossible for businesses with over 15 employees.  It is probable that the 15 employee threshold will be either eliminated or raised for businesses with, say, 250 employees.  Or, the threshold may be removed all together but with restrictions imposed on sacking those already in jobs.

While Italy’s unions are determined to play hard-ball over the sacking issue, they do not seem to be prepared to offer suggestions as to how the system could be modified to a) generate more jobs and b) make it easier for businesses to send unproductive employees home.  New laws may contain some kind of legal definition of the difference between ‘productive’ and ‘unproductive’ workers.  This may protect workers from unreasonable employers.  Establishing a system for monitoring productivity will not be easy and keeping such a system objective will be even for difficult in a country such as Italy which is prone to cronyism.

Italy will be Dragged Kicking and Screaming into the 21st Century

It is possible, though by no means certain, that towards the end of 2012, the way Italy works will begin to resemble how some of Europe’s better functioning nations are run.  Services may become more efficient and the economy may begin to drag itself out of the doldrums.  ‘May’, not the month, is the operative word in this instance.  Mario Monti’s government may not survive as many of Italy’s politicians seem to be almost proud of the fact that tax evasion in Italy is rife.

Italy certainly has plenty of potential and with the right guidance this mischievous European nation may actually realise it.

To drag Italy out of the quagmire it finds itself in, Italy’s rag tag bunch of politicians will have to act responsibly too, which is not something many of them are too good at doing.  Italy, however, is being watched from beyond its boundaries, although the observers may lose interest if the Euro ceases to exist in 2o12.

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