Whilst 100% of Italians thinks that at least 99% of Italians is getting worse from the stability law project, Minister of Economy Mr. Grilli stated last Tuesday during a parlamentary speech, as reported by Italian press agency ANSA: “99% of our tax payers will benefit from it” (stability law). Mr Grilli explains that there is differentiation across income levels and that “lower incomes” are favored.
How is this contradictory interpretation possible? Minister evaluates the specific measure presented to Italian Chambers, singled out from fiscal regulations and previous manouvres. For Mr. Grilli and the government, the 1-point VAT’s increment is actually a reduction, since a 2-points increment was already accounted for in balance procedures and figures. But all other italians who are not members of the government, instead, are not interested in the single measure, and how much more or less we will have to pay because of it. What matters instead is the cumulative effect of ALL fiscal measures currently in effect and how much because of them we will have to pay (and if it will be more or less of what we had to pay for previously). To us, VAT increases 1 point, not decreases.
With this misinterpretation about the effects of the stability law, Mr. Grilli has however confirmed to us, if it ever was needed, that governments only look at their balance sheet and do not pay attention to italian families’ balances; they do not take into account, as after all Constitution demands them to do by mean of contribution capacity, if they are actually capable of paying requested taxes and, after having done that, they can as well keep on consuming, producing goods and services and investing. This apparent indifference for economical fate of citizens-taxpayers (on the other hand state’s stakeholders) seems to be notably emphasized in case of a technical governments – that does not need their votes.
As I wrote in other occasions, this government seems to mix up (maybe because of “technical” shortsight) Italy with its public sector, public sector with its balance sheet and balance sheet with its break-even.
It’s more convenient then to perform a short exercise to show how much, overall, italians had to pocket-out in excess over time due to ALL fiscal measures that have been following up each other. And in order to not only zero-in on the current government, we are going to consider a broader timeframe, from middle last decade until today, during which governments of all types experimented in Italy have been following one another: center-left wing, center-right wing and technical ones. This way we also include choices from Prodi Government (2006-2008), Berlusconi’s (2008-2011) and technical Monti government (2011-2013).
Exercise simply consists of confronting nominal GDP variation over time with fiscal drag variation over the same time. By putting side-by-side the latter with the former, we obtain an unusual but significative measure of fiscal pressure that we can call “incremental fiscal pressure”: for each additional 100 euro of GDP how many of them ended up to the taxman?
Chart 1 shows us variation one year to another, in B€, of nominal GDP and fiscal drag. For example, 2004 to 2005 nominal GDP increased by 39 B€ and fiscal drag by 11 B€, whereas during recessive year 2009 nominal GDP decreased by 56 B€ and fiscal drag decreased by 18 B€. During recessive year 2012, instead, nominal GDP is expect to decrease by 16 B€ but Mont’s government is asking to pay an additional 28 B€ in taxes. Won’t be much better in 2013: nominal GDP is expected to increase by just 18 B€ (as forecasted in the updated DEF document) and Monti’s government will ask for additional 17 B€ (compared to 2012) and 45 B€ more (compared to 2011), with a nominal GDP practically stable and actually declining by about 3% during the overall decade.
Now it’s time to perform the most interesting part of our exercise, taking into account both cumulative figures since 2005. First, we consider how much, overall, nominal GDP increased since 2005 and then how much overall fiscal drag changed over the same time frame. Then we factor in fiscal drag and GDP increment.
And here are the results:
- Since 2005 to 2008 (political gov. Prodi) nominal GDP increased by 139 B€ and fiscal drag by 96 B€. Increased fiscal drag therefore took up 69% of increase in GDP.
- Since 2005 to 2011 (political gov’s Prodi and Berlusconi) nominal GDP increased by 144 B€ and fiscal drag by 96 B€. Increased fiscal drag therefore took up 67% of increase in GDP.
- Since 2005 to 2001 (political gov’s Prodi and Berlusconi and tecnical gov. Monti) nominal GDP will increment by 128 B€ and fiscal drag by 124 B€. Increased fiscal drag therefore took up 97% of increase in GDP.
At this point, a question for Monti’s government is paramount: how is it possible to think that Italians are going to put an effort in producing more GDP if they experienced first-hand that government is ready to take it all away from them in order to try to adjust it’s balance sheet?
Lacking a radical change in economical policy, it may be possible that GDP will stop from decreasing in real terms (when government will stop increasing taxes) but any reason whatsoever why it should start again to grow is not in sight.
Translation by Editorial Staff
Original Article by Ugo Arrigo from Chicago-blog.it