Sunday, July 02, 2006

Italy: deficit package introduced; constitutional referendum fails

The Italian Government has proposed a package of deficit-reduction matters that does not include any change in tax rates, for now. Instead the deficit will be reduced (or so the Government says) by a package of spending reductions and anti-tax evasion measures, including such familiar items to Americans as limitations on cash transactions, tougher restrictions on business use of cars, and taxation of stock options based on the difference between the market and option price. There will also be stronger tax penalties; tougher restrictions on tax shelters (paradisi fiscali); and stricter procedures for the distributions of partite iva, the valued added tax identification numbers that also serve the purpose of distinguishing business from nonbusiness taxpayers. In a rather clever bit of marketing, the Government is simultaneously proposing liberalization of various hidebound regulations, such as a rule prohibiting sale of aspirin in supermarkets and a rule (this is not a joke) limiting the number of bakeries in particular municipalities. One such proposal, a suggestion to open taxi licenses to new competition, has already led to taxi strikes at major airports and other important locations. The Italian tax system has traditionally had difficulty policing the boundary between business and personal expenditures because of the large number of family-owned businesses in the country, who often keep inexact records. And, perhaps, cheat.

In an unrelated, or at least different, development the country's voters overwhelmingly rejected a referendum that would have made major changes in the Italian Constitution, including the granting of more power to regions and an increase in the Prime Minister's powers at the expense of the Cabinet and the legislature. While some of the reforms were sensible, many of the proposals were identified with the ousted Prime Minister, Silvio Berlusconi, who has become somewhat toxic even on the Italian right as of late. Threats by the Northern League and its allies to take the issue to the streets fizzled when the referendum failed to carry even in several major northern centers.


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