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What Italy's new budget proposals mean for foreign residents

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What Italy's new budget proposals mean for foreign residents
Photo: Vincenzo Pinto/AFP
16:42 CEST+02:00
Italy's new coalition government has hammered out a draft budget proposal that it hopes will allow it to avoid a VAT hike, without sending national debt skyrocketing.

 As the proposal goes under scrutiny both in Rome and in Brussels, we take a look at elements which could be particularly relevant for foreign residents.

This article was written for Members of The Local. Read more about Membership here.

Italy's Five Star Movement-Democratic Party government belatedly submitted its draft budget proposal yesterday after days of drawn-out talks and squabbling between ministers.

The two parties, long-time rivals before they joined forces last month, missed their deadline as they continued to clash over spending plans on key issues such as pension reform.

The key aims of the budget are tackling tax evasion while raising enough revenue to cancel a scheduled hike in VAT, the government said, while its wider goal is to rein in the country's massive (and growing) deficit and jump-start its sluggish economy.

Italian Prime Minister Giuseppe Conte in Brussels on Thursday October 17. Photo: AFP

“The bill does not stop at eliminating the [increased] VAT clause for 2020, but contains important provisions for work, the environment, investments, families and disabilities,” the government said in a statement on Wednesday.

The draft proposal, despite being submitted for review, is still being tweaked and the full text has still not yet been released. Based on what ministers have announced so far, here's a look at the policies likely to be most relevent to The Local's readers:

No VAT increase

Cancelling a planned hike in VAT next year will leave Italy with a 110 billion euro tax gap, but the government believes it will be able to make up this loss through other measures – particularly by clamping down on tax avoidance.

Clampdown on tax-dodging

Government ministers have said a clampdown on major tax-dodging by big companies and CEOs is the focal point of the tax plans.

By going after tax evaders, they hope to bring between €800 million and €1 billion euros back into public coffers.

The government is discussing measures including longer prison terms for tax evaders as well as enforcing a three percent tax on web giants like Facebook and Google.

Italy has a tax evasion rate of about 30 percent, one of the highest in Europe, although companies and CEOs rank among the biggest tax dodgers, with an evasion rate almost 19 times higher than that of employees.

Five Star Movement (M5S) leader Luigi Di Maio stressed on Thursday that the government will be beefing up jail terms for big tax evaders, but will not be targeting small business owners.

Encouraging card payments

In a related effort to regularise Italy's enormous shadow economy and its culture of cash payments, the budget includes measures intended to incentive card payments and electronic transactions, including charges for large cash withdrawals.

READ ALSO: Italy's black market is now worth more than €200 billion

"We want to introduce incentives to push the acquisition of card readers by shop owners and traders, and talk with operators about reducing commission," Economy Minister Roberto Gualtieri said.told the Sole 24 ore newspaper on Thursday.

The measures will cut the maximum cash payment that can be made in Italy from the current 3,000 euros down to 1,000 euros by 2022.

The government has said it would also drastically reduce the expense of electronic transactions.

Photo: AFP

Taxes on plastic and sugar

Gualtieri also said the budget bill would include a sugar tax, but that it would be "restricted to drinks and not applied to snacks" as had previously been discussed by ministers.

A tax on plastic, meanwhile, will be limited to some types of packaging - mainly that used for food and drinks.

Gualtieri added: "there are no interventions on petrol and there won't be a retroactive intervention on tax breaks, which has been talked about."

Tax cuts for low earners

A proposal to reduce the “tax wedge” for Italian employees (the difference between before-tax and after-tax wages) has also been included, at an expected cost of some three billion euros.

Deputy Economy Minister Antonio Misiani announced that cuts to the tax wedge would give each worker around 500 euros more income per year net, on average.

Family fund

The new budget reportedly includes increased funding for family welfare programmes and will introduce free nursery school places for children in lower income families.

From 2020 the current system of baby bonuses, welfare payments and nursery school subsiidies will be merged into a single “fund for the family” (il Fondo per la famiglia) which the government says will receive a boost of around 500 million.

For eligible families, a single payment is expected to be introduced by 2021 of up to 240 euros per month for each child under 18.

Pension reform

Despite weeks of rumours and squabbling within the government, there will be no change to the recently-introduced “Quota 100” pension system. Italian media reports however that the scheme will not be renewed once the current three-year trial period expires in 2021.

The latest budget, with its focus on balancing the books, is in sharp contrast to last year's highly controversial “people's budget” proposed by the previous populist coalition government.

It caused months of arguments and tension between Rome and Brussels over its potential to increase Italy's soaring national debt even further, before Italian ministers finally backed down and amended the plans.

The 2020 budget plan will go to Italy’s upper and lower houses of parliament to be scrutinised by lawmakers before being voted on by the end of the year.


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