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IMF IMU Support Raises Italian Hackles

Wednesday, 10 July 2013   (0 Comments)
Posted by: Author: Ulrika Lomas
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Author: Ulrika Lomas

The concluding statement of the International Monetary Fund (IMF) Mission, after its recent 2013 Article IV Consultation with Italy, recommended the retention of the property tax on primary residences (IMU), and was then immediately faced with the anger of those Italian politicians looking for its abolition.

The IMF staff considered that a fiscal adjustment towards expenditure cuts and lower taxes is urgently needed in order to arrest the declining competitiveness of the Italian economy and support growth.

While, over recent years primary expenditure has declined by nearly 2 percent in nominal terms, it is said that "efforts to cut spending should continue with the budget starting in 2014, by implementing a more comprehensive spending review focused on improving the efficiency of public spending and finding additional savings to lower taxes."

"The spending reviews should be undertaken jointly with a systemic review of tax expenditures," the IMF added. "The property tax on primary residences should be maintained for equity and efficiency reasons, and the review of cadastral values accelerated to ensure fairness. Stepping up efforts to combat tax evasion, including through better use of anti-money laundering tools, and increasing the inheritance tax would also raise revenue and more fairly distribute the tax burden."

Savings from the above measures, it was suggested, "would help achieve the Government's objective of reducing the high tax on labor (4 percent of gross domestic product higher than the euro area average) to boost employment and raising the allowance for corporate equity returns to spur investment.

"However, the IMF's recommendations provoked a sharp political reaction, particularly from ex-Premier Silvio Berlusconi's center-right party, and member of the governing coalition, which made the elimination of IMU on first residences a priority in its election campaign, and has already obtained a delay in its first 2013 payment until later this year, pending further reforms.

While the reply of the Italian Minister of the Economy Fabrizio Saccomanni was laconic – "we will take account of its views" – the reaction of Renato Brunetta, the leader of Berlusconi's party in the Chamber of Deputies was harsher. He invited the IMF to concern itself with general macroeconomic and financial matters, but "to leave Italy to decide, if it wanted to withdraw IMU from first residences, and if it wants to reform property taxes. The IMF could, at least, leave us with a bit of sovereignty."



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