Italy Economy Real Time Data Charts

Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Italy related comment. He also maintains a collection of constantly updated Italy economy charts together with short text updates on a Storify dedicated page Italy - Lost in Stagnation?

Thursday, December 28, 2006

Prodi, Prodi, Ay, Ay, Ay

There are a spate of articles on Romano Prodi's resolutions for 2007 these days in the press. In the first place he is telling Italians in no uncertain terms that where you should look for indulgence is not at the Vatican, but at your local tax office:

In the first 11 months of 2006, income-tax revenue increased more than 9 percent to 33.8 billion euros (44.4 billion). The gains came as Prime Minister Romano Prodi committed more resources to chasing cheaters as part of a pledge to end tax evasion in seven years.

Prodi's effort, which aims to generate 8 billion euros in revenue next year in a country where an estimated 100 billion euros of taxes go unpaid each year, may determine whether Italy is able to fend off fines for breaching the European Union deficit limit. It also contrasts with the policy of former Prime Minister Silvio Berlusconi, who raised revenue through tax amnesties -- forgiving evasion for a fee.

``Eight billion euros in such a short time may seem a little ambitious, but there is no doubt that Prodi's government has taken a stance toward evasion that is very different from the previous one,'' said Annamaria Grimaldi, an economist at Banca Intesa SpA in Milan. ``Not passing amnesties and one-offs all the time is already a step in the right direction.''

Now there are two things to be said here. The first is that this years good returns at the tax offices are largely a product of the exceptionally good year the Italian economy has enjoyed, and of the ongoing process of legalization of immigrants, there is no real evidence of any substantial change in attitudes to paying taxes.

The second thing is, of course, to note that a lot of Italy's immediate economic future hangs on turning dream into reality when it comes to improving tax returns. If not, then the ratings agencies will be once more breathing down the Italian government's necks come the end of next summer.

However even before the money is in and counted (assuming it does in the end arrive, which I think is open to doubt) there are already plans to start spending it:

Italian Prime Minister Romano Prodi, staking his political future on his budget, promises 2007 will be the ``year of the turnaround'' and doesn't rule out cutting income taxes to spur the economy.

``I will insist on growth, without which no other objective can be reached,'' Prodi said at his year-end press conference broadcast by state-owned television Rai SpA.

After winning in April the closest election in Italy's history, Prodi has battled with his allies on how to cure Italy's economic woes and had to resort to confidence votes to get the 2007 budget approved. Faced with a slump in popularity, some members of his nine-party coalition already are clamoring to cut income taxes as soon as next year while Finance Minister Tommaso Padoa-Schioppa says the priority must be to cut debt.

Prodi today tried to dodge the thorny subject. Asked whether his government would use higher tax receipts to reduce income taxes, Prodi said: ``First we need to see how consistent this revenue is and once we have established if it's stable, then the government can decide to cut taxes.''

One way to find the resources to actually cut taxes would be to address the issue of reforming the pensions system. So now attention is focused on accelerating the reform process next year, especially with regard to product market de-regulation, and pension system reform:

Italy’s centre-left government will aim next year to make the economy more competitive by cutting the time needed to start up a company and encouraging foreign investment, Romano Prodi, prime minister, said on Thursday.

Setting out his objectives for 2007, Mr Prodi said he would propose reforms before the end of February to the creaking state pension system, but declared that they would not be so harsh as to justify strikes by those workers affected.

Left-wing critics in Mr Prodi’s nine-party coalition have warned they will resist pension reforms that damage workers’ interests. The premier is constrained to heed their opinion because of the government’s tiny majority in parliament’s upper house.

So here are the promises for 2007, now lets go and see what actually happens, but if I could add, for my taste, Prodi is spending far too much time trying to keep everybody happy, and not enough time taking the difficult decisions which undoubtedly have to be taken to secure Italy's future.


Anonymous said...

Your assessment is wrong.
The revenues were mostly due thanks to the policies (late to be implemented I admit) of the previous administration.
Furthermore with this new budget, a staggering 40 billions euros which even the minister of finance Padoa Schioppa has admitted being excessive, the average Italian will be left dry and reforms will not be implemented.
Mark my words
This is only to fill up the coffins of the various ministries to be used mainly to dispense for political favours and ensure their stay in power.
This budget is simply a scandal which will sink Italy further into recession and despair.
Great blog which I read with pleasure but some of your assessments are wrong and I might add very ingenuous.
Best regards

Edward Hugh said...

"Your assessment is wrong."

Hi. Well you are certainly and obviously entitled to your point of view. I am not so sure, since I am not sure I am making any assessment of the part of the situation which is of most interest to you, namely who is most responsible for the mess Italy is in.

Since I am nether of the right nor of the left, I am happy to say that they are both responsible, as I am also sure that they are both responsible for some of the good things to be found in Italy.

So if I'm not for the right and I'm not for the left, does that mean I would favour a regroupment in the centre to put away stupid party Ideology and do something about all this (though it is hard now to see exactly what to do, given that the roots of the biggest part of the problem are to be found in the rapid ageing of the situation).

I agree in principal, since I am opposed to the tax raising emphasis to be found in the budget, and believe there need to be serious spending cuts, especially the structural programmes (ie inbuilt things like health and pensions) unpopular as they may be. There is now little alternative. This is the price to be paid for letting us get where we are.

"This budget is simply a scandal which will sink Italy further into recession and despair."

Well, I would put it in a rather different way, but yes, unfortunately I do think Italy may well have yet another recession next year, and probably another debt downgrade by the ratings agencies at the end of the summer, and yes, all that may well produce despair among the public at large.

"reforms will not be implemented."

Yes, I agree, this is also quite probable, and is certainly the most depressing part.

Anonymous said...

Prodi is a product of antiquated socialism, a prolonged experiment that has failed in every country and province on which it has been inflicted.

The U.S. and Britain, under the policies of Reagan and Thatcher, have had two decades of virtually uninterrupted growth perforce of tax reductions. One need go no further than examination of the stunning success of Bush's post 911 tax cuts on dividends and capital gains--a growth rate nearly twice that of any industrialized economy, unemployment half that of europe and the lowest in u.s. history, and virtual emimination of the deficit.berlusconi's cuts in taxes
on capital formation produced a similar tax windfall for italy that prodi would reverse.

Italy needs to take a cleaver to the bureaucracy, reduce wage taxation to 15-20% at the margin, replace the job strangling pension system, and remove the regulatory labyrinth that drives talent and growth elsewhere. Forza Italia, chastened for indecisiveness, will soon return to undertake this mission.