Tax Changes Are Crucial For Italian Economy

May 10, 2011 Taxation in Italy

Taxes in ItalyItaly has been recommended to instate several tax changes, which could improve the economy and reign in the government’s significant levels of debt.

Since the first quarter of 2008, Italy’s national GDP has dropped by nearly 5 percent, and the level of public debt is expected to hit 120 percent of the GDP this year. In the face of these problems, the Organization for Economic Cooperation and Development (OECD) issued a new report on May 9th, containing several recommendations for Italy aimed at strengthening the economy and paving the way for future economic prosperity. The report focused on potential reviews to economic policy and several of tax measures which would allow Italy to develop strong and sustainable growth over the long term.

Italy was commended for its plan to reduce government spending, balance the government deficit by 2014, and stamp out tax evasion occurring in the country. However, the OECD warned that if any indications arise that the fiscal goals are not achievable or will be delayed, the crackdown on tax evasion will not be enough, and tax increase will be necessary. It is currently estimated that tax evasion in Italy amounts to nearly 18 percent of the national GDP, equivalent to nearly a third of the reported private sector economic activity. On May 4th Prime Minister Silvio Berlusconi gave an interview to the national television show Porta Porta, in which he explained that Italian taxpayers should not expect to see any reductions in taxes rates in the near term, as the country’s economic conditions would not allow it.

In an effort to boost the reduction of the budget deficit, it was suggested that the government should consider partial reforms to the national tax system. The OECD recommends that Italy has to broaden its tax base, in order to raise revenues and reduce instances of tax evasion. Particular attention was drawn to the possibility of instating green taxes as incentives for beneficial environmental development, especially across the waste management and water sectors. Taxation and economic policies could also be implemented to encourage the research, development and production of environmentally beneficial technologies.

Photo by Simone & Pino Berettoni