They are the cross of every government. As the economic maneuver draws near, the issue of tax expenditures comes back into play. To balance the books and avoid imposing new taxes, the pool to draw from is that of fiscal expenditures, a complex of deductions, allowances, various discounts, also known as tax expenditures, granted over the years often as electoral bribes and which weigh like millstones on public accounts. The challenge is to perform a surgical operation, cutting where excessive stomach aches are not unleashed by the interested and benefited categories. It is therefore a question of identifying those small fiscal expenditures that do not weigh more than 10 million euros but can still bring a little oxygen to the state budget, avoiding falling into the quicksand of higher taxes.
According to the account drawn up by the Parliamentary Budget Office (UPB), the de facto Italian public accounts authority, tax expenditures have had an exponential growth in terms of number and value, going from 486 in 2018 to the 625 currently recorded, with a loss of revenue for the state coffers that has almost doubled, from 54 to 105 billion per year, or about 6 points of GDP. A huge figure, which is added to other amounts borne by the community and which are often the result of political choices dictated by momentary or electoral motivations, whose financial effects then drag on for generations, increasing the public debt. Currently, about 3 out of 4 Italians make use of one or more of the various deductions. According to the UPB, the average benefit stood at 175 euros in 2021 and only 4% of taxpayers had a tax relief above a thousand euros.
The government is placing a lot of emphasis on clearing out these rumors, so much so that an ad hoc commission has been created at the Ministry of Economy, led by economist Mauro Marè, which has the aim of sifting through tax expenditures to see where the scalpel can be stuck.
The main problem is that the deductions applied to Irpef are concentrated on taxpayers with higher incomes: the 50% of the least well-off have approximately 15% of the total deductions (as reported by the Upb) while 26% concerns the richest 10%.
Many have tried to clear this jungle but without significant results, because in the end corporate interests prevailed and nothing was done. But for the Meloni government if it wants to keep its promise to cut taxes for the middle class, the path is obligatory. Just to confirm the measures for 2024, including above all the fiscalization of social charges and the three Irpef brackets, 18 billion will be needed.
The deductions are mainly for income from employment and pensions (63%), family circles (17%), deductible charges (7.6%), building renovation costs (11.4%) and energy retrofit costs (2.9%).
The Marè Commission report shows that between 2022 and 2023 the number of tax expenses did not increase but remained substantially unchanged. More than half of these have a cost of less than 10 million euros. By canceling them all, at least 400 million would be obtained.
It is emphasized that “many have a very low average value, a very limited number of beneficiaries and several items have negligible and non-estimable amounts”. It is clearly stated that “the political economy of tax expenditures in our country has little to do with tax, efficiency or distribution objectives: they are mainly a tax subsidy that emerges in the process of exchange with pressure groups”.
The Commission has assessed the financial effects for 411 of the 555 measures in force, which amount to approximately 96.3 billion euros for 2024, 95.9 billion for 2025 and approximately 96.5 billion for 2026. The greatest cost to the budget is represented by the various building bonuses which alone represent 40% of the total tax expenditure recorded, for an amount of approximately 38 billion euros for 2024. But on this item the margins for maneuver are very limited.
It should be remembered that the delegation for tax reform aims to safeguard a series of deductions: for income from work and pensions, business, family, health, disadvantaged people, art, culture, research, education, environment, technological innovation. The deductions for health expenses actually enjoyed are worth 3.8 billion and are used by 18.7 million taxpayers while those for interest on mortgages for the purchase of the main residence are worth 730 million and were used by 3.7 million people.
The Commission’s report highlighted that out of 625 expenditure measures, 145 generate expenditure of less than 10 million euros. Among these, the largest number concerns Irpef (49), tax credit (19), VAT and excise duties (13 for each class); followed by stamp duty and land registry taxes (12), Ires (8), Irpef/Ires, inheritance taxes (6 for each cost class) and others (6). To these are added 144 measures that cannot be quantified but most of which concern VAT (38) and stamp duty and registration taxes (32) and 78 have no budgetary effects.
Politics has so far shown considerable affection for the instrument of tax expenditures and considerable inventiveness, given that most of the deductions, exclusions, reductions and the like concern limited groups of taxpayers and circumscribed production or social activity sectors. Such as, for example, the tax relief for renting rustic land, the flat tax for medicinal herb collectors, the exclusion of excise duty for self-produced organic gas mixtures. To make the 25 billion maneuver work, a fine-tuning action and above all a political agreement in the majority will be needed.
