Italian government’s tax proposals leave trade unions cold

Updated: Mar 14, 2023, 16:06 UTC

By Giuseppe Fonte ROME (Reuters) - Italy on Tuesday will present to trade unions a bill to reduce current income tax bands from four to three within two years, a move that critics say will mainly benefit the wealthiest.

Italian PM Meloni and deputy PM Tajani attend a swearing-in ceremony at the Quirinale Palace, in Rome

By Giuseppe Fonte

ROME (Reuters) -The Italian government’s plan to reduce current income tax bands from four to three within two years got an hostile response from the trade unions on Tuesday, who argued it would mainly benefit the wealthiest.

Prime Minister Giorgia Meloni’s government intends to overhaul the fiscal system with the aim of achieving a single tax rate before national elections scheduled in 2027, according to government officials and a draft seen by Reuters.

It also wants to offer incentives for companies to invest and hire employees.

The three main unions, CGIL, CISL and UIL, said after a meeting with the government that they were considering launching a joint protest.

“We do not agree with the three-rate scheme as it favours high and very high incomes, while 85% of Italian employees and pensioners have an income of less than 35,000 euros per year,” said Gianna Fracassi, a CGIL representative.

The government, which plans to approve the bill on Thursday, is considering setting the three bands at 23%, 33% and 43% in the short term, the officials said, adding that a more expensive solution being studied would lower the second band to 27%.

The current income tax levy, named IRPEF, is based on rates running from a minimum of 23% on annual income up to 15,000 euros, to a top rate of 43% on income above 50,000 euros.

To avoid straining state coffers, the Treasury plans to partly fund the bill by reducing and simplifying the current 600 ways in which people and firms can deduct various types of spending from their tax bill.

These so-called “tax expenditures” deprive the state of 165 billion euros ($176.35 billion) in revenues every year, a document showed.

Chronic tax dodging

Alessandro Santoro, finance professor and a former Treasury official who helped draft parts of Rome’s post-COVID Recovery Plan under Meloni’s predecessor Mario Draghi, downplayed the positive effects claimed by proponents of the flat tax model.

“The incentive effects on employment and investment theoretically linked to the reduction of income tax have rarely materialised, and have in any case been less than the negative impact on revenue of the lower rates,” he told Reuters.

Under the fiscal reform, the current corporate income tax rate of 24% would be split into two by introducing a second lower band at 15% to reward entrepreneurs who create jobs and invest in innovation to boost productivity.

“The more they hire and invest, the less they pay,” the Treasury document said.

The bill also sets out a cooperative approach to try to curb Italy’s chronic problem of tax evasion, which cost the state some 90 billion euros in 2020, according to the most recent Treasury data.

Rome offers small firms and the self-employed the chance to agree in advance how much they should pay to the state in taxes over the coming two years, without fear of inspections.

($1 = 0.9356 euros)

(Reporting by Giuseppe Fonte, editing by Gavin Jones and Christina Fincher)

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