Pensions, Cuts and Tax Evasion Targeted by Budget Changes

Clampdown on brass-plate companies. Solidarity supertax binned No more pensions after 40 years’ contributions regardless of age. Parliamentarians halved. Provincial authorities eliminated

ROME – The minimalists won the day. The budget will undergo some modification but it will not be redrafted. Above all, government sources say, it is a package with an “unvaried net impact”, as economy minister Giulio Tremonti points out. VAT remains unchanged and there will be no swingeing cuts to welfare. Instead, they will be replaced by less spectacular interventions, although the effectiveness of the new measures has yet to be verified. The aim is to generate revenue by combating tax avoidance – a revised version of the so-called property tax on evaders proposed by the Northern League – together with reduced tax breaks for co-operative enterprises. On the pension front, a compromise seems to have been found to keep everyone in the majority happy. This should bring in a few billion euros to refocus some of the measures in the budget.

Three billion euros more for local government The €9.2 billion to be cut from local authority spending in 2012-2013 will be reduced to two billion, or three taking into account higher revenue from the Robin Hood tax on energy companies, which is regarded as certain. The remainder will be found by stepping up the campaign against tax evasion on the ground. Local authorities will have an incentive to winkle out evaders as they will be able to keep a substantial portion of the revenue recovered. The easing of the local government spending cuts satisfied the Northern League, at least in part. Satisfaction was also voiced by Osvaldo Napoli, the interim chair of ANCI, the association of municipal authorities: “It’s good news that we’ll be better able to assess in committee. For municipal authorities, the spending cuts could drop from €1.7 billion to €850 million”.

Solidarity supertax for parliamentarians only

There will be no solidarity supertax on incomes of more than €90,000, which the People of Freedom (PDL) heartily disliked and which would have generated €674 million in 2012, €1.5 billion in 2013 and a similar amount in 2014. The tax with its two thresholds of five and ten per cent will remain in place for parliamentarians. Northern League politicians are pressing for it to be maintained for footballers as well and have already presented amendments to double it.

VAT rise recedes as screw tightens on pensions

The Northern League-Giulio Tremonti duo also managed to block the rise in VAT. There will be no change. A VAT hike remains a card the government could play, as was decided in July, if welfare reform and cuts to tax allowances fail to bring in the four billion euros in savings budgeted for 2012, the 16 billion expected in 2013, or the 20 billion slated for 2014. Mr Tremonti would prefer to include adjustments to VAT in the wide-ranging reform of taxation that he has promised. There is, however, a seemingly limited intervention on welfare that will raise quite a few hackles. It will no longer be possible to take a pension after 40 years of insurance contributions regardless of age, unless the retiree has actually worked for 40 years. No longer will workers be able to purchase pension rights for years spent studying at university or on military service.

Clampdown on brass-plate companies

The stated objective is to prevent the rich from registering homes, second homes and other luxury property to brass-plate companies for the sole purpose of avoiding taxes. The Prime Minister’s Office note says that new tax regulations will be put in place to “eliminate abuse of property registrations and proxy owners for the purposes of avoidance”. This is the “evasion tax” announced a few days ago by simplification minister Roberto Calderoli to target those who own assets inappropriate to their standard of living, such as the yachts, horses and luxury cars already included in the income assessment mechanism. “The good times are over for those who use brass-plate companies or trusts not to pay taxes”, said Mr Calderoli, summing up the mood of the meeting. According to the economic package’s presenter and chair of the budget committee, Antonio Azzolini, “There is political agreement”. Details of the measure, however, have yet to be defined. For the time being, there is only agreement. The amendments will be tabled over the next few days, “as has already been clarified in committee”.

Co-ops hit hard

The squeeze on residual tax allowances for co-operative enterprises went through, despite a tenacious rearguard action by both right and leftwing-dominated co-ops. Government experts reckon that co-operatives still enjoy allowances worth €714 million a year, made up of partial exemption from IRES (company tax) and enhanced deductions. This area will now be re-examined and co-operatives will have to contribute to the sacrifices.

One parliamentarian in two to go

While listing the amendments to the second version of the budget, Silvio Berlusconi announced that a constitutional bill would be tabled to halve the number of parliamentarians. Obviously, this will take some time since bills to amend the constitution require a double reading in Parliament. Provincial authorities have been removed from the immediate agenda. The issue will be dealt with in a constitutional bill to abolish provinces entirely and transfer their functions to regional authorities. But there is uncertainty over the outcome. In the past, objections to the move have come from the Northern League.

English translation by Giles Watson

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