Berlusconi, the billionaire former Italian prime minister pledged to reimburse Italians €4bn for an unpopular property tax. This is probably the first time he has promised to give money back, but it is definitely not the first time he has pledged to cut taxes.
Berlusconi lavished promises of tax cuts periodically throughout the past decade, but he failed to translate them into reality, even when he was in power from 2001 to 2006 and again from 2008 to the end of 2011.
In fact, according to the OECD the average income tax rate increased in Italy across all types of households, whereas it was reduced in most other OECD countries.
For a single person earning an average salary, the Italian income tax rate is 21 per cent compared with 15 per cent of the OECD average. For a couple with one earner at an average salary Italians pay 15 per cent of their labour costs, compared with 9 per cent of the OECD average. And similar differences can be observed across all types of households.
But Italy also had a higher and generally rising tax wedge rate, which is personal income tax in addition to the social security contribution and payroll taxes less cash transfers. Countering the declining rates in the OECD countries, single taxpayers with high income, and one-earner and two-earner couples with children faced the third highest tax burden among the OECD in 2011. Italian single taxpayers with average or high earnings took home about half of what they cost to their employer.
But tax rises did not stop at income. Consumption has been taxed at a rising rate and the average VAT now stands at 21 per cent compared with more than 18 per cent in the OECD.
The only area in which Italian tax rates reduced over the past nearly two decades is corporate taxes. In 1994, when Berlusconi became prime minister for the first time and stayed in power for a few months, Italy had the highest corporate income tax rate across all the OECD countries, more than 53.2 per cent. But the corporate rate was drastically reduced to 37 per cent in 1997, when the centre-leftwing leader Romano Prodi was in power. After that, Italy continued to take part in a race to reduce corporate taxes to attract businesses. But that gave little benefit to the tax burdened citizens.
Italians face among the highest tax burdens in the OECD countries combined with high energy prices and public services. It’s little surprise that promises to alleviate the amount of money taken from Italians for public services that are not always provided have a strong appeal to the electorate. But Berlusconi has failed to keep his tax promises so far, and there are no reasons to think it will be different this time.
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