why Italians pay less taxes – Corriere.it

I’ve spent the last couple of days in the company (via video call) of Russian dissident historians like Garry Kasparov and Mikhail Khodorkovsky, which is stimulating though not entirely relaxing. But I won’t end my weekend without sharing a doubt that has been haunting me for weeks with the subscribers of “Whatever it Takes”: Is paying taxes going out of style in Italy? Because looking at the trend of tax revenues, one would say yes. It seems that the escape is rearing its head.

The disappearance of tax revenues (and the flat tax flop)

Not that he ever lowered it much. true that the Annual Report on tax evasion, signed this year by Prime Minister Giorgia Meloni and Economy Minister Giancarlo Giorgetti, generally shows a progressive decline in what he modestly calls the “propensity for the tax gap”. From 21.1% in 2015 to 18.3%. It means that eighteen euros for every hundred that would be owed to the state are not paid. However, for some categories the “gap” widened. Not dropped. The “propensity” not to pay personal income tax for self-employment and business, it goes up for example from 65.1% in 2015 to 67.6% in 2018, up to 68.3% in 2019. Basically, according to the prime minister and the minister of the economy, the self-employed evade over two-thirds of the euros they should pay to the tax authorities.

Giorgia Meloni herself does not seem to be speaking here, according to whom, on other occasions, the problem of evasion mainly concerns large groups. In truth, this data holds at least one other lesson: the 15% flat tax on VAT numbers, much enlarged arguing that it would have reduced the propensity to evade, is not working in this. The “gap” of the self-employed also grew in 2019, when the Lega-M5S government introduced the first enhanced flat tax that the current government intends to further expand. But here is a more pressing matter, closer in time.

How are the state coffers?

I already wrote that this year the government requirement for the moment is going badly: at the end of May it was already 81.8 billion, i.e. about 46 billion more than a year earlier (see chart above). The State Accounting Office explains that many objective factors contribute: from the benefit that citizens are drawing from the tax credits from home bonuses accumulated in recent years, to the fact that the rate increase greatly reduces the profits from the securities portfolio of the Bank of Italy. So the Bank of Italy has stopped paying the Treasury the huge dividends of the past few years. Then, however, there is an additional factor, not mentioned in the last note from the Accounting Office on the requirement: tax revenues are also bad. There is less revenue flowing in than would be logical to expect. What I mean? Simple: the latest note from the Department of Finance on tax revenues photographs the picture between January and April of this year compared to the same period in 2022. Exactly 150.9 billion euros entered the first four months of 2023, i.e. 1.75% more than the 148.3 billion euros of the first four months of 2022. Still, it doesn’t add up. For nothing.

Why? Firstly, because between April of last year and April of this year, the Italian economy grew in nominal terms – that is, in monetary value, in the amount of euros with which gross product is measured – by about 8%. This is in fact the result of the sum of real growth and inflation. So revenue should have also risen by about 8%, if revenue hadn’t been worse or better than last year. Instead of 150.9 billion in revenue, we should have had just over 160 billion. Something is happening that is holding back the payment of taxes by Italians. Yeah, but what? The first culprit may be the usual suspect: the enormous mass of tax credits from home bonuses (“Superbonus and its brothers”) that Italians are starting to exploit, legitimately, to get rid of a little tax burden. But this culprit alone couldn’t have done everything, there must be an accomplice. How do I tell? According to Economic and Financial Document projections (usually accurate) tax credits will cut revenues by $20.7 billion this year, therefore just under seven billion between January and April 2023. But the tax revenue less than what would have been foreseeable is ten billion. In essence, three billion in tax revenues are missing in the first four months of the year, which the home bonus tax credits are not enough to explain. At this rate, it would make well over half a point more deficit and debt at the end of the year, not really peanuts.

The least paid taxes: VAT

But let’s go a little deeper into the mystery, looking at the most symptomatic area of ​​evasion: indirect taxes, those on consumption such as the Value Added Tax (VAT). Here the increase in the nominal value of the turnover of the Italy-system by 12%, therefore the nominal revenues should have grown by 12% (if everything had gone like a year ago). In reality, however, how did it go? Indirect tax revenues have even decreased, in quantities of euros, compared to a year ago. When measured as a proportion of GDP, they have simply collapsed. They were 69.8 billion between January and April 2022, they are 69.7 billion in the same period of this year. Here more than eight billion are missing. And here too there are the usual mitigating factors (house bonuses), but it doesn’t seem like they can explain everything.

Between January and April, VAT grew by 5.25% compared to a year earlier, when it should have been 12% higher. The comparison, in the data of the Department of Finance, with what happened during the government of Mario Draghi is especially interesting. Revenue in general and VAT revenue had been stagnant in the last phase of Giuseppe Conte’s yellow-red government. Then as if the Italians had suddenly become very scrupulous in paying taxes. They started taking it damn seriously. Since Draghi took office at Palazzo Chigi and Daniele Franco at the Ministry of Economy, VAT revenues have jumped well over 20% every month and up to 40% more than the previous year. Each month, again measuring the cumulative difference over the previous year in the period since the beginning of each year. And revenue generally is consistently up well over 10% and up to 16%, again compared to the year before. During the Draghi and Daniele Franco phase, revenues are even a little further than where they should have been, given the strong growth of the economy and price increases. We all took taxes very seriously during that short season. As is done at school with a prestigious teacher, a little unknown and a little feared.

The step back with the Meloni government

Once Meloni took office, this dynamic seems to be collapsing. In February and March of this year you are even traveling below the overall revenue levels of a year earlier. There can be many explanations, of course. But nobody takes one of the many possible ones out of my mind: some Italian must have convinced himself – wrongly, I hope – that now with taxes there is no longer any need to be too serious. One may have interpreted the signals that continue to arrive from the government in this way: the increase in the cash threshold allowed for purchases up to 5 thousand euros; the attempt to undermine the obligation to accept even small card payments in shops; the “preventive tax agreement” envisaged by the tax delegation, which someone must have interpreted as a kind of preventive tax amnesty (“if they last one I would evade 68%, in the next two years I will evade only 62% but the state cannot pi send checks”); finally, signals from politicians such as the unfortunate Melonian phrase on taxes such as “state lace” (vero, the premier pronounced it after the revenues discussed here, but it is part of a large family of similar declarations). All this, if you will, a paradox. The economic policy of this government hinges on the reductions in the rates promised with the enabling tax law. The knots will come to a head with the budget law next autumn. But if revenues and needs continue like this, I guess that text will remain in the drawers gathering dust (like many of its predecessors, after all).

This article was originally published in the Whatever it Takes newsletter, curated by Federico Fubini.
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