The Strategist

Analyst: EU's recommendations may cause a tax tsunami in Italy

05/25/2017 - 12:17

Italy managed to avoid introduction of EU sanctions because of the excess deficit of the state budget this year. At the same time, however, Rome is recommended to take a series of measures that will result in higher taxes and tariffs in the next year, writes Il Giornale.

Brussels demands that Italy bring the deficit of the state budget to 1.2 percent of GDP by 2018, which implies "substantial efforts, for which it will be very difficult to expect allowances" from the European Union, the newspaper notes.

The European Commission’s recommendations, in particular, concern increase of VAT, cancellation of some grounds for granting tax exemptions and exemptions, as well as a cadastral reform. Brussels’ key requirement is the need to bring back a tax on the first housing, with an asterisk that the measure will be applied to those who have high incomes.

According to Il Giornale, this requirement becomes political for the current government, "the main shareholder of which is the Democratic Party led by Matteo Renz"i. Minister of Economy and Finance Pier Paolo Padoan, answering journalists' questions, said: "Changing an opinion of a tax that has been canceled only a few months ago is not a good idea".

Antonio Tajani, Chairman of the European Parliament, agrees with this, saying: "I share the requirements of the European Commission for 99 percent, except for the tax on housing, since this topic is of particular importance in Italy".

The importance of this topic increases with the fact that the country has been waiting for a new electoral cycle for several months now. The issue of taxes, in connection with the EU recommendations, can catalyze a process that is constrained only by the absence of an electoral law, the basic text of which is currently being considered only at the parliamentary commission’s level.

The ruling Democratic Party is inclined not to wait for completion of the current legislature in February 2018, but to hold early elections in the autumn instead. In this case, the budget for the next year and the related financial and economic document will be compiled and adopted by the new government. The latter will have to take into account and implement recommendations of the European Commission, as well as bear responsibility for unpopular measures. However, all this will be happening after the elections, which the democrats led by Matteo Renzi intend to win.

In anticipation of the final decision, Renato Brunetta, Head of Forza Italia party’s parliamentary group, believes that "in 2018, Italians will be flooded by a new tax tsunami that will cause a decrease in consumption, intensify the crisis in the already exhausted construction sector, and will call into question achievement of the goals in economic development and lower unemployment". 

Italy’s economy in the first quarter of 2017 added 0.2% compared to the previous 3 months, when growth was recorded at a similar magnitude, earlier reported Istat.

In annual terms, the Italian economy increased by 0.8% after an increase of 1% in the fourth quarter of last year. In general for 2016, the country's GDP, with the exception of seasonal and calendar components, grew by 1%.

Earlier it became known that consumer prices in Italy in April 2017 (according to the national standards CPI) increased by 1.9% year on year after growing by 1.4% a month earlier. Relative to the previous month, inflation in April rose by 0.4%. At that, consumer prices in Italy, calculated by the standards of the European Union (HICP), rose by 2% in annual terms and by 0.8% on a month-to-month basis.


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