Italy has a big problem with tax evasion and the shadow economy. Prime Minister Giorgia Meloni is now raising doubts about her fight against this with controversial statements.
How seriously does the Italian government take the fight against tax evasion? Prime Minister Giorgia Meloni compared tax requirements on small businesses with mob protection money at a campaign event in Catania, Sicily, on Saturday. The government will take the fight against tax evasion “where it is real: with the big companies, with the banks and with VAT – not with the small trader where the state demands protection money”, she said.
The word “protection money” (“pizzo”) is associated in Italy with the mafia, which likes to blackmail small businesses under threats of violence. Meloni’s choice of words in Sicily immediately set off a debate in Italy. Economist and former Secretary of State Cecilia Guerra, who belongs to the opposition social democratic party PD, spoke of an “extremely questionable” claim. “When you say that, it means the state is treating taxpayers like a criminal organization. Taxation is the instrument for the functioning of collective goods – not an instrument of blackmail”, she told the newspaper “Repubblica”.
Significant burden of taxes and social security contributions
Italy has long had a big problem with tax evasion and the shadow economy. In income tax terms for Meloni-protected self-employed people, the tax gap between potential and actual income reached an all-time high of nearly 69% in 2020, the most recent year available, according to the Treasury Department. Almost 28 billion euros escaped the state. Although he has recently made strides in VAT evasion, it is still high. According to the Catholic University of Milan, tax evasion accounted for 21.3% of revenue owed to the State in 2019; in France it is only 7.4 percent, in Spain 6.9 percent and in Germany 8.8 percent. Along with other taxes, Italy loses around €100 billion annually to tax evasion.
Not taking fiscal responsibility too seriously is accepted in many places. “Those who evade taxes generally feel no shame,” sociology professor Adele Bianco wrote in a study last year. It is here that Italy significantly differs from other countries. However, each government is judged by the courage with which it tackles tax evasion.
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Meloni’s criticism arose when he increased the cash limit for payments in commercial transactions from 2,000 to 5,000 euros, which is intended to combat tax evasion and money laundering. In addition, various “fiscal peace” measures are provided for in the latest budget law, with which taxpayers can “clear” arrears against generous deductions. Tax assessments of up to 1,000 euros that were issued up to 2015 were even fully annulled. Independent institutions such as the Banca d’Italia have criticized these measures. Also due to tax evasion, the weight of taxes and social security contributions is considerable: in terms of gross domestic product, it is only surpassed by Denmark, France and Austria.
Source: DO