A promise of a flat tax by former prime minister Silvio Berlusconi Friday sparked sharp reactions from opponents ahead of a general election and head-scratching among economists.
Campaigning ahead of a general election on March 4 at the helm of the conservative Forza Italia movement, Berlusconi said on TV late Thursday that such a tax would start at the current minimum rate of 23 percent, before being brought down to below 20 percent.
The remarks by Berlusconi — who never sought to introduce a flat tax during his three terms as prime minister — immediately drew criticsm from centre-left former prime minister Matteo Renzi who said he wondered where the money to finance the move would come from.
“The flat tax at 15 percent would cost 95 billion euros ($115 billion), and at 20 percent 57 billion,” Renzi said Friday.
A 15-percent flat tax proposal has been part of the platform of far-right Northern League, allied with Forza Italia, for years.
Its supporters says it would replace the current progressive tax rates which run up to 43 percent.
Forza Italia parliamentary chief Renato Brunetta called a flat tax “a revolutionary measure that will relaunch the country after the (current) disastrous government is gone”.
Lost tax revenue would be offset by less tax evasion and higher spending power for households, supporters say.
“The crazy people who pay (taxes) now will pay a bit less, and those who don’t pay at all will pay in the future,” Northern League chief Matteo Salvini said.
But Luigi Marattin, an economist and former Renzi aide, called the flat tax “a colossal joke” and “deeply unfair” because it would benefit mostly the wealthy.
Capital Economics analyst Jack Allen, said imposing a flat tax “wouldn’t be quite that simple”, possibly violating the Italian constitution which calls for a progressive tax code.
He also said that any positive impact on economic growth “would be negligible” because the government would have to accompany the tax cuts with spending cuts “to avoid a blow-out in the budget deficit”.
At any rate, Allen said, it was not certain that Italy’s current tax regime is really a constraint on economic performance.
Instead, the government may be better advised to strengthen the business environment by making it easier to start a business, obtain credit and enforce contracts, he said.