n 2008, the West’s favorite bogeyman, Silvio Berlusconi, delivered on a campaign pledge by abolishing property taxes on first homes, a dubious choice in terms of national revenue. Italians had long paid modest first home levies, far lower than most of their European counterparts. But since first homes often housed extended families, Berlusconi hoped the measure would fortify his populist support and ensure a five-year term. Taxes on second and third properties would remain intact.
Few at the time foresaw the dawning of the sovereign debt crises and its euro overspill. Fewer still guessed Greece was cooking its books to keep the European Union happy, only to come unglued and set in motion a pan-European downward spiral that has yet to abate.
Enter economist Mario Monti, hailed as Berlusconi’s providential successor. Among his first revenue-generating moves, part of December’s so-called “Save Italy” decree, was to reverse the tax break and announce a new generation of property pay-ups in an effort to generate a fast-cash firewall against national bankruptcy.
Previously known as ICI, property taxes would go by a new acronym, IMU, and usher in changes to both fixed and variable rates so that they better reflected European norms (never mind that Italian salaries are about 20 percent below that norm). Unclear were the details, which Monti’s said would be worked out in due course, the most lethal of pledges.
Though opposed by unions, the “Save Italy” package passed, largely because the government promised to behave more gingerly in cutting pensions and repealing laws on firing, the dirtiest of Italian dirty words.
Beginning in January, Monti’s team began establishing property tax criteria. It amended early tax drafts to allow for deductions depending on family size. It then created an installment plan. But city and regional government, it said, would ultimately be responsible for fixing the variable rates, so-called aliquote. Taxes in larger cities such as Rome and Milan would be heavier than those in midsized cities. The Monti hand-off, which called for state officials to interact with local ones, soon produced confusion and stalemate. Some cities, including Rome, lacked the manpower to overhaul a standing system. Accountants began raising objections to what they called incomprehensible wording. Monti’s famous “in due course” hit a wall.
Even now, six weeks before the first installment of the new tax was originally due, most accountants still don’t know how the tax breaks down. In Rome, updated tax forms have yet to be printed. One deadline has already postponed with others to follow.
Frittered away in the chaos is much of the grudging public acceptance Monti’s fetching technocrats earned six months ago. Like many of their predecessors, they’ve been unable to tame the beast that is Italian bureaucracy.
The reasons speak to Italy’s deeper dilemmas. The first is the absence of substantive urgency. Once the Berlusconi cuts were rescinded — a decision that would compel some families to pay thousands of euros annually when before they’d paid nothing — the essential next step was to swiftly set out clear new guidelines to prevent the kind of confusion that typically ushers skepticism.
But lock and load didn’t happen. Instead, the central government couldn’t get cities and regions to hurry up. Italian newspapers that months ago began publishing online tax calculators have since been forced to update them almost weekly. Neither variable rates nor exemptions have been fully fleshed out.
Discipline, central to the rule of law, and central also to law-changing, has been predictably surrendered to the more culturally acceptable cauldron of Italian maybes that Monti’s “Save Italy” team insisted had to go by the wayside. What hasn’t changed is the government’s desperate need for cash, nor the extent to which that cash will be supplied by country’s middle class (most luxury tax proposals stalled).
The property tax fiasco not only showed poor judgement and follow-through, but also fortified middle class resistance to austerity, which has turned quietly ferocious, shredding Monti’s overall momentum. Doubters of Monti’s two-step process — taxation followed by growth — have begun their catcalling. How can a government incapable of clearheadedness possibly shake up a stagnant economy? Even Italy’s Court of Auditors, a national body that oversees public spending and income, recently warned of “tax pressure already well outside European norms.” It’s a reverse domino effect building in strength.
“People are actually being asked to pay a tax without knowing just what tax structure is being used to calculate the figure,” wrote Corriere della Sera in a news report more scathing than an editorial. “It’s been four months since the tax structure was changed,” it added, “and banks still can’t figure it out.”
Readers went further. IMU, wrote one, “will go down in history as the most unfathomable and hard-to-calculate tax ever devised by the human mind…”
All this from a national salvation decree hailed last fall by the Monti government as the bitter pill the country needed to swallow to survive. Now, both saviors and the saved are being forced to gag their way into summer.