Italy Eliminates Its Real Estate Tax

The center-left-right coalition government of the Italian Republic has agreed to eliminate the hated real estate tax, according to ANSA, the Italian news agency.  ANSA reports that the $4 billion in revenue will be made up with taxes on services. 

The onerous tax had been imposed by the technocratic government of former Prime Minister Mario Monti as part of its efforts to eliminate Italy’s budget deficit and reduce its high debt burden.  Monti had cut spending, but his tax increases, especially of the real estate tax, worsened the severity of Italy’s recession and prolonged it.  The lack of economic growth means decreases tax revenue, which makes it even more difficult to reduce debt.

The Parliament will have to approve the tax deal, which is certain to pass.  The elimination of the tax was a requirement for participation in the government by the center-right.  The failure to reach the agreement threatened the unstable executive.  Governments in Italy are notorious for not lasting long, although often the same party has remained in power by simply re-shuffling the Cabinet.  The current grand coalition of the center-left and center-right, however, is unprecedented and most analysts do not expect the executive to endure more than a few months.  Its stability has been further strained by the conviction of former Prime Minister Silvio Berlusconi on fraud charges and his ban on holding public office.  He leads the center-right bloc of parties.  ANSA reports that action is pending in the Senate to remove him from his seat.  Although the center-right is protesting his treatment by the courts, they are unlikely to abandon the government and trigger another parliamentary election, according to ANSA, as they are not likely to win.  The resolution of the real estate tax controversy will stave off the Government’s collapse, for now.  

The Government of Italy is also working to continue Monti’s work of avoiding an increase in the value added tax, the onerous European sales tax, reports ANSA.  Thankfully, the Italian Republic continues to pay a lower premium on interest rates on bonds – around 250 basis points higher than benchmark German bonds, according to ANSA – than it had.  The Government has managed to initiate only a few reforms so far.  A bigger test will come when it addresses constitutional reforms.