Not Saving Italy

By Global Tax Weekly

One leader who claims to have an eye on the long-term is Italy’s (unelected) Prime Minister Matteo Renzi. Italy’s Tony Blair (who was elected, the British one that is) came to the leadership offering an Italian version of New Labour’s “third way.” Put simply, this means that you can cosy up to the business sector while still maintaining a social conscience. You can be pro-enterprise without having to be a rabid Thatcherite. History tells us that the New Labour experiment got off to a bright start, but crashed and burned amid the wreckage of the credit crunch. Indeed, Gordon “Prudence” Brown’s famous (or should that be infamous) “Golden Rule” went out of the window even before the financial whirlwind was unleashed, leaving the UK with a budget deficit bigger than Greece’s. Anyway, moving on from the UK of the past and back to the Italy of the present, I guess the point I’m trying to make here is that Renzi, as youthful and fresh-faced as he is, needs to channel this energy into something more radical for Italy. Taxes – the Italian tax burden is one of the highest in Europe – need to come down, spending needs to be cut, entrenched, inefficient bureaucracies need sweeping aside and labor laws need to be loosened. Renzi’s three-year economic and financial plan adopted by the Cabinet in April was an underwhelming start, and judging by the way that the 2015 Budget Bill is shaping up, the difficult issues will be dodged once more. Tax cuts will be in it, but at a level hardly worth talking about. A figure of EUR20bn in spending cuts initially made me sit up, but spending in certain areas will be increased. One can be too critical of Renzi I suppose. Italy’s current problems have been built up by weak and ineffectual governments over decades, and there almost needs to be a complete overhaul of Italy’s governmental system before anyone can realistically think of making the required economic reforms. Renzi has been hailed by some as the most skilled political operator in Europe right now. He needs to start proving it.

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