Wednesday, December 30, 2009

Berlusconi's merry-go-round

The latest Italian tax amnesty has yielded an inflow of €95 billion. This represents approximately 20 per cent of the total volume of undeclared funds deposited outside the country by Italian citizens (source: Bank of Italy). The Italian government estimates that this latest amnesty will yield additional revenues of €5 billion, which whilst helpful is nonetheless a huge windfall for tax evaders who yet again have been treated very lightly by the Berlusconi government.

This latest amnesty is the third in the past decade. In 2002-03, Berlusconi gave an amnesty covering assets held outside Italy. Some €78 billion of personal assets were repatriated at that time. This was followed by an amnesty targeted at undeclared assets held inside the country. That one revealed around €100 billion of assets not revealed to the authorities.

The latest inflow of repatriated illicit funds will provide a short-term fillip to the flagging economy, but we are sceptical about claims by the Ministry of Finance that "the time of tax havens has finished forever. To place or keep money in tax havens is no longer convenient, neither in economic nor in tax terms. The returns are small, the risk is high."

The problem lies with the combination of the low penalty levied (5 per cent is way below norms) and the anonymity granted to tax evaders. This leniency will do little to deter anyone from jumping back on the merry-go-round. What it does demonstrate, however, is how one set of (lenient) rules apply to rich and well-connected people, while those at the other end of the social spectrum, especially immigrants, can expect no leniency whatsoever.

O tempora, o mores.

1 Comments:

Blogger Physiocrat said...

Italy is another country with a tax system not fit for purpose, to the point that it is apparently voluntary. I am told that by people who live there there is a very poor sense of the value of the public realm. On the other hand, one must concede that the voluntary nature of the Italian tax system is part of the reason for the economic success of Northern Italy, whilst still providing an economic surplus. The latter ends up in the hands of criminal organisations, since government does not bother to collect it.

The opposite of Sweden, in a way, where there is strong sense of the public realm and the tax system is choking the economy to death.

The solution to both situations is the same, isn't it?

11:15 pm  

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