Living in Italy

Italy’s parliamentary election 2022

I thought I would start this newsletter with a story of a recent trip to the market in Rome. As you will know, if you read this E-zine regularly, I go to the Mercato Trionfale for the weekly food shop. I like the experience, colours, sounds and chats in the market. I find that you also get a good idea of what is on people’s minds and how people are thinking in any moment. Obviously, the talk of the moment is not the Queen’s death (you may or may not be surprised to hear this) but of the upcoming elections in Italy. Both events are significant for women. Obviously, the Queen’s funeral is important because she seemed to be the glue that held the royal family and the Commonwealth together and we shall see how King Charles III gets on with that responsibility. Also, an equally important event is likely to be the election of Giorgia Meloni as first female prime minister of Italy.

Giorgia Meloni, for those of you in the know, is the leader of the Fratelli d’Italia party and is considered right wing. She is leading the polls with about 25% of the vote. Closely followed by the Partito Democratico (leftwing) with approx 21% of the vote. However, as is always the case in Italy, the parties need to form a coalition with smaller parties to gain a voting majority. Fratelli d’Italia have already announced their right-wing coalition with both la Lega (Salvini) and Forza Italia (Berlusconi). Together it is expected that they will garner about approx 45% of the vote. That is essentially a landslide in Italian politics and it is almost certain at this point that the ‘centrodestra’ coalition will be taking power shortly after the vote on 25th September.

The big worry for many is that Giorgia Meloni and Fratelli d’Italia have their roots planted in a fascist past and the feeling is that their policies will start to unravel years of democratic advancement in the name of equal rights and protection for women (which in Italy are still lacking in some many areas), gay rights, abortion rights etc. It was with all this in mind that I decided to follow Giorgia Meloni and Matteo Salvini on facebook this summer. To be honest, what I read wasn’t significantly alarming and to be fair to Giorgia Meloni she has dealt with all criticisms head on and opening encouraged discussion with her opposition, rather than just slurring them for being different. One particular instance was where someone got onto a stage when she was holding a rally and started a protest against her views on gay rights. She kindly invited the person to take the stage with her and explain their position so she could defend her own. Now, don’t get me wrong, I am no fan of Giorgia Meloni or any other right wing party in Italy but I would like to see more of this type of open discussion of differences of opinion and critical thinking rather than one side just spewing venom at the other because they have opposing views. Anyway, for someone who is a first-time voter in Italy (I gained citizenship in 2019 and so this is my first opportunity to vote in Italy) it has been an interesting journey so far. However, one other thing that piqued my interest, and I thought I would share with you here, is the centrodestra proposals to introduce a flat tax.

But, before I go into that, I will take you back to Mercato Trionfale for a moment. I wanted to tell you about the fact that I buy my eggs from the same stall, where oddly enough, he ONLY sells eggs! For as long as I have been going there (6 years) the eggs have been 35c for a ‘bio’ egg. After I arrived back from the summer break he apologised and explained that he needed to raise his prices. Now they are 40c a ‘bio’ egg. My initial reaction was whoooahh, an almost 15% increase in the price. But then I started to reflect on this whole inflation debate we have at the moment.

Quick thoughts on inflation
Obviously, prices’ rises are having a pretty big impact on our lives right now, and I don’t know about you, but I am anxiously awaiting my winter fuel bills this year. That aside, I was thinking that in the 6 years I have been buying eggs, this vendor has not increased his prices, not one cent.

In the financial planning world when I am looking at clients’ long term planning we always use a general rule of thumb of 3% inflation each year. Where do we get this figure from? Long term studies of inflation! Economists have looked at inflation over very long periods of time and established that bouts of inflation arrive in short periods, followed by periods of stable prices. If we think about the egg vendor and that he hasn’t increased his prices in 6 years, if he had done so using the 3% rule, then the price of his eggs should be more like 18% higher today than they were 6 years ago. This puts his 15% into context. Maybe we are not all that far off where we should be anyway. It’s just that when it arrives as a tsunami rather than a serious of small waves it tends to hurt a lot more.

My point is that prices’ rises are normal, and we have lived through an extended period of stability and low prices. With the significant debt creation events of the last 15 years (financial crisis 2008/2009 and more recently Covid), it is to be expected that inflation would return at least for a period of time, and even maybe rebalance to its long-term historic norm.

Flat Tax
OK, enough about inflation because I am sure that you are about as bored of hearing about it as I am. Important as it is, it doesn’t need ramming down our throats at every turn.

The talk of a flat tax rate of 15% has mainly been lauded by La Lega and Matteo Salvini; whilst the other parties have similar talk of flat taxes, there are some differences in the parties’ proposals. Let’s have a quick look at them here:

LA LEGA: A simple flat tax of 15% on all incomes. It has been calculated that this would blow a hole of approximately €50 billion euros in Italy’s public finances. Also, it is a highly unfair way of taxing people. Someone earning millions could get a 15% tax rate, in addition to someone earning €15000 a year. Clearly unequitable and favourable to the wealthier elements of society, not something I ever see coming to fruition.

FORZA ITALIA: A simple flat tax of 23% (equal to the lowest current band of income tax rates). It’s pretty much the same story as above, but instead would only blow a hole of €30 billion in the public purse!!

FRATELLI D’ITALIA: Their proposals, in my opinion, seem more do-able. Firstly, there is talk of introducing a ‘no-tax area’, which in other words would be a tax allowance on the first €120000 on income, extended to everyone. This would essentially model the UK style of taxation and is a model that I prefer. It favours the poorest in society and is a fair approach, in my opinion. However, that would come with a potential cleaning of the current system of detractions and deductions for medical expenses, vet’s bills etc. Who knows if the current system of bonuses for various home improvements will also be stripped back?

In addition, the idea is to a) (try not to laugh at this please) introduce an incremental flat tax system which will start at 15% (I have no idea what the difference is between progressive tax rates and incremental flat tax rates, but it sounds good) and then over time work towards a suitable flat tax rate, and b) tax income from properties and other financial assets at that flat tax rate of income tax .

Lastly, anyone who is currently working through a partita IVA ‘regime forfettario’ and is currently taxed at 15% up to income of €60000 pa, will have that ceiling raised to €100,000 pa.

There’s more!
Things do not stop there! One other interesting development is that according to an estimate in an article by Il Sole24Ore, Italians and Italian resident individuals have approx. €100 billion in assets and cash hidden in security boxes, either in Italy or abroad. I am not sure exactly how they come to this estimate and it certainly seems a large figure. The ‘centrodestra’ also sees this as another opportunity to try and bring these assets/cash home.

The proposal here is not a ‘condono’ (a kind of write off of any previous tax liabilities for a one-off tax payment, as it has been used frequently in the past), but to reduce the taxes on assets/cash by 50% for a fixed time period, to allow people to repatriate their funds and in addition apply a sanction of just 5% on the amount. This could be quite an interesting idea and for a number of foreigners living in Italy who have still not regularised their financial affairs, it could be an opportunity to do so rather than using the current system of fines and penalties that are significantly higher. The prevailing argument from the other side is that if someone is not ‘in regola’ with their financial affairs in Italy, then no financial benefit should be offered. However, rather than spending years of taxpayers’ money trying to find these hidden assets and cash, is it better to offer an opportunity to regularise them for a one-off payment? Who knows? The important thing is to get the money under the watchful eye of the Agenzia delle Entrate, no matter how you go about it, or at least goes the logic.

Let’s just start admitting the reality
I think it’s OK to start talking about the fact that the ‘centrodestra’ coalition are going to be governing Italy very shortly, so we can watch and wait to see what happens. Firstly, we can wait and see whether the International financial markets will approve of this government, (I suspect they will not blink an eye in the face of bigger issues around the world). Secondly, whether the EU will start their hardball tactics with a coalition that are inherently EU sceptic and teetering on the edge of advocating an Italexit (even if that is unlikely due to the constitutional requirements of just arriving at a Referendum).

Whatever happens next, there are going to be changes afoot in Italy, and you never know, some might even be for the better. Only time will tell.