Nicola Rossi e Alberto Mingardi
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Italy’s tax plan sounds bold but could ease pressure
Letter to the Editor from Nicola Rossi and Alberto Mingardi, Istituto Bruno Leoni, Milan
Replica ad un commento di James Politi apparso sul Financial Times (riportato in calce a questa pagina)

As James Politi reports (“Berlusconi woos Italian voters with flat tax plan”, January 11), we at Istituto Bruno Leoni estimate a cost of roughly €27bn a year in lost revenues. In fact, our proposal would levy a 25 per cent flat rate on most taxes — included, but not limited to, the individual income tax — and would profoundly transform the welfare system, cutting tax expenditures and establishing a universal transfer system for those who live below the poverty line.

This is hardly a rabbit that some politician has pulled out of his/her hat. Something on similar lines was advocated by Nobel laureate Milton Friedman and by Sir Tony Atkinson.

While we are aware that Italian public finances, which subsist in perennial dire straits, require to undertake cautious and credible steps in any reform process, we maintain that we can hardly escape the challenge of changing the Italian tax system.

The Italian tax system is onerous and singularly ill designed. Its “fiscal progressivity” is highly concentrated on medium-income taxpayers. It doesn’t create proper incentives for productivity. Italians perceive it as convoluted. With an almost infinite array of tax expenditures and special privileges, it creates loopholes to benefit those who can navigate it.

A flat-tax proposal may sound bold for a country such as Italy but in the face of its complexity incremental reforms appear less likely to succeed than a radical simplification.

Istituto Bruno Leoni’s proposal will cut fiscal pressure by 4 per cent, bringing it closer to the European average, and indeed will cost €27bn a year.

In the past few years, spending review procedures gave governments a similar latitude for new, discretionary policies. It is thus a matter of political will, rather than technical constraints, as our research demonstrated.

The lack of such political will would indeed deem the Italian political class not so much as a reckless, but an incompetent lot.

Da Financial Times, 12 gennaio 2018

Berlusconi woos Italian voters with flat fax plan

by James Politi

Italy’s resurgent centre-right led by former prime minister Silvio Berlusconi has put a “flat tax” plan at the heart of its economic platform for the March general election, sparking concern about the potential impact on the country’s strained finances.

“The flat tax is simple and fair, and it would no longer be convenient to avoid or evade taxes,” Mr Berlusconi said in a radio interview. “Fewer taxes on families, fewer taxes on companies, fewer taxes on labour, means more consumption by households, more production by businesses, more employment and more money in the state’s coffers to help citizens.”

Mr Berlusconi’s Forza Italia party and the Northern League, its Eurosceptic coalition partner, are heading into the election with optimism. Most polls show that, if they stick together, they would be in a position to defeat the ruling centre-left Democratic party, led by Matteo Renzi, and the anti-establishment Five Star Movement.

Mr Berlusconi hosted Matteo Salvini, the Northern League leader, and Giorgia Meloni, leader of the rightwing Brothers of Italy, at the weekend to hash out the terms of their alliance ahead of the election. Officials from all three parties are expected to meet soon to develop a detailed platform.

The parties have divergent views on the euro, with Mr Berlusconi saying Italy should remain in the currency union and Mr Salvini advocating a departure. But they have converged on other proposals, including overturning pension reforms introduced in 2012 and sweeping fiscal changes that would include the introduction of a flat tax.

“We believe the moment has come for the flat tax it’s the fiscal shock that will make Italy emerge from the trae it’s been in for the past decades,” Renato Brunetta, an ally of Mr Berlusconi in the lower house of parliament said. “It would lead us to a growth rate of more like 3 per cent.”

A flat fax – a single uniform rate, in contrast to a progressive system, which taxes higher earners more heavily – has been part of conservative economic thinking for decades. But it has rarely been applied, with the main examples being countries in central and eastern Europe.

It could be particularly attractive in Italy, which has one of the highest tax burdens in the developed world, with tax revenues accounting for 42.9 per cent of gross domestic product in 2016, well above the average of 34.3 per cent for the Organisation for Economic Cooperation and Development, a group of mainly rich nations. Italy also has a relatively high rate of tax evasion. Successive governments have grappled with how to make individuals and businesses come clean.

Mr Berlusconi, a media mogul and three-time former prime minister who resigned during the sovereign debt crisis of 2011 and was later convicted of tax fraud, has been a fan of a flat tax since his first political campaign in 1994 but has never been able to enact it, leading to accusations that he lacks credibility on the matter. “They are running out of ideas and they are gambling on the short memory of the Italian electorate,” said Filippo Taddei, a professor at SAIS-Europe in Bologna and a former economic adviser to the Democratic party.

“But Italians do remember that Berlusconi was in charge of the country for a good nuinber of years and never carne dose to the reduction in taxes that he is talking about now.”

The criticism of Mr Berlusconi mirrors a broader line of attack by Mr Renzi that he is peddling potentially harmful proposals to increase his appeal. “I have never believed that Berlusconi is a danger for Italian democracy, contrary to others,” Mr Renzi said. “But he is a danger for the economy.”

Another concern with the proposal is that it could drill a big hole in the budget at a time when Italy’s debt burden, measured by its ratio to GDP, remains among the highest in the eurozone and the country is still vulnerable to a debt crisis. According to the Bruno Leoni Institute, a libertarian think-tank, a flat tax set at 25 per cent would create a revenue shortfall of at least €27bn per year, meaning a rate of between 15 per cent and 20 per cent, as advocated by the centre-right, would cost even more. “We would all be happy to have lower rates, the crucial point is how do we cover the smaller revenue flow, so the details are essential,” said Nicola Rossi of IBL.

Mr Brunetta and other centre-right officials argue that the costs of the flat tax proposal can be covered by curbs on spending, as well as higher economic growth and the clampdown on evasion that would be implicit in the plan.

But Luigi Marattin, an economic adviser to Paolo Gentiloni, the centre-left prime minister, claimed the plan would benefit the wealthy over middle-class and low-income Italians. “It would be a masterpiece of redistribution from the poor to the rich,” he said. Although the details are yet to be hammered out, the centre-right would attempt to mitigate this impact by creating an exemption from taxation for income up to €13,000 per year.

Da Financial Times, 11 gennaio 2018