OECD, Lawmakers Disagree On Future Italian Tax Policy
06 May 2013
Posted by: Author: Ulrika Lomas
Source: Ulrika Lomas (Tax-News.com, Brussels)
While Italian politicians have continued to debate the possibility of abolishing the taxation of first residences within the local property tax (IMU), the latest country report by the Organisation for Economic Co-operation and Development (OECD) has commented that cutting taxes on labor should be the priority if the policy objective is economic growth and increased employment.
Actually, to achieve a long-term decline in Italy's high level of public debt, the OECD supports continued fiscal austerity in order to reach the fiscal targets for this year and for 2014, even if it means that there will be no growth in the economy until next year (and then of only 0.5%). In any case, the OECD says, significant tax cuts in the near term will be impossible, and it will only be possible to reduce gradually the overall high level of taxation in the future.
However, in his speech introducing the report, Angel Gurría, OECD Secretary-General, did recommend that the continued fiscal consolidation in Italy could "become more pro-growth and equity-friendly." For example, it could be possible to reduce tax expenditures to widen the tax base and cut income tax rates, without an impact on tax revenue.
"Cutting taxes on labor is the thing to do if you really care about growth and jobs," Gurria said. "Other tax cuts can wait." He added that "the global tendency is to reduce taxes on businesses and employment by balancing such cuts with increased taxes on consumption, on property ownership and on greenhouse gas emissions."
On the other hand, Italy's politicians appear fixated on eliminating the incidence of IMU on first residences, and even the reimbursement of the tax paid in 2012 (the year it was introduced), as promised during the recent election campaign by ex-Premier Silvio Berlusconi, whose center-right People of Freedom (PdL) party is part of the governing coalition led by the new Premier Enrico Letta.
While Letta is professing that a decision on IMU reform would only be taken by the coalition as a whole in the next few weeks, Berlusconi's party continue to insist that their policies were agreed during the formation of the coalition, whereas their center-left coalition partners point out that the Government does not have the necessary fiscal space to make such changes.
While the interim IMU payment due in June for this year is being postponed pending the decision by the Government, it has been calculated that the tax's elimination for this year and repayment for last year would cost around EUR10bn (USD13.1bn).
As put succinctly by an economic spokesman for the center-left Democratic Party concerning the possible cancellation and repayment of IMU, "if we have unexpectedly found EUR10bn-12bn to spend, so be it, but that will never be." On the other hand, Berlusconi continues to make both actions on IMU a condition for the PdL's future support of the Government.
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