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Here’s what the Italian budget means for foreign residents

With Italy's finalised 2020 budget set to be approved, we look at what it will mean for those of us living in the country.

Here's what the Italian budget means for foreign residents
Will the new budget mean you'll have more of these in your pocket? Photo: AFP

Italy's recently-installed coalition government hopes that its fiscal plan for next year will allow it to avoid a VAT hike, without sending national debt skyrocketing.

Here, The Local takes a look at elements of the budget which could be particularly important for foreign residents.

This article was written for Members of The Local. Read more about Membership here.

Italy's Five Star Movement-Democratic Party government said last month that the key aims of the budget were tackling tax evasion while raising enough revenue to cancel a scheduled hike in VAT, twhile its wider goal is to rein in the country's massive (and growing) deficit and jump-start its sluggish economy.

READ ALSO: Europe warns Italy over spending, but gives green light to the budget

 

Italian Prime Minister Giuseppe Conte in Brussels on Thursday October 17. Photo: AFP

“The bill does not stop at eliminating the [increased] VAT clause for 2020, but contains important provisions for work, the environment, investments, families and disabilities,” the government said in a statement.

No VAT increase

Cancelling a planned hike in VAT next year will leave Italy with a 110 billion euro tax gap, but the government believes it will be able to make up this loss through other measures – particularly by clamping down on tax avoidance.

Clampdown on tax-dodging

Government ministers have said a clampdown on major tax-dodging by big companies and CEOs is the focal point of the tax plans.

By going after tax evaders, they hope to bring between €800 million and €1 billion euros back into public coffers.

The government is discussing measures including longer prison terms for tax evaders as well as enforcing a three percent tax on web giants like Facebook and Google.

Italy has a tax evasion rate of about 30 percent, one of the highest in Europe, although companies and CEOs rank among the biggest tax dodgers, with an evasion rate almost 19 times higher than that of employees.

Five Star Movement (M5S) leader Luigi Di Maio stressed on Thursday that the government will be beefing up jail terms for big tax evaders, but will not be targeting small business owners.

Encouraging card payments

In a related effort to regularise Italy's enormous shadow economy and its culture of cash payments, the budget includes measures intended to incentive card payments and electronic transactions, including charges for large cash withdrawals.

READ ALSO: Italy's black market is now worth more than €200 billion

“We want to introduce incentives to push the acquisition of card readers by shop owners and traders, and talk with operators about reducing commission,” Economy Minister Roberto Gualtieri said.told the Sole 24 ore newspaper on Thursday.

The measures will cut the maximum cash payment that can be made in Italy from the current 3,000 euros down to 1,000 euros by 2022.

The government has said it would also drastically reduce the expense of electronic transactions.

Photo: AFP

Taxes on plastic, company cars and sugar

After an outcry from businesses, a planned tax on plastic has been softened and will now be limited to some types of packaging – mainly that used for food and drinks. The government is reportedly revising its plans to increase taxes on the use of company cars.

Gualtieri also said the budget bill would include a sugar tax, but that it would be “restricted to drinks and not applied to snacks” as had previously been discussed by ministers. Taxing sugary soft drinks is expected to bring in 234 million euros to state coffers next year.

Gualtieri added: “there are no interventions on petrol and there won't be a retroactive intervention on tax breaks, which has been talked about.”

Flat tax for entrepreneurs

The government has confirmed it will go ahead with the introduction of a flat 15 percent tax rate for small business owners and self-empoyed workers earning less than €65,000 annually.

Tax cuts for low-to-middle earners

A proposal to reduce the “tax wedge” for Italian employees (the difference between before-tax and after-tax wages) has also been included, at an expected cost of some three billion euros.

Deputy Economy Minister Antonio Misiani announced that cuts to the tax wedge would give each worker around 500 euros more income per year net, on average.

Extended baby onus
Italy's “baby bonus”, which has so far been reserved for families with a total income below 25,000. will become available to everyone from 2020. It's paid in monthly installments, with payments varying across the following income brackets:

  • Up to €7,000: bonus of €1,920 per year (as before)
  • Between €7,000 and €40,000: bonus of €1,440 (reduced)
  • Over €40,000: bonus of €960 (new)

The rate applies to children born or adopted in 2020, and increases by 20 percent if a second child is born or adopted in the same year.

This is not the same as the existing bonus mamma, or “mothers' bonus”, which the government confirmed will continue next year. This is a sum of 800 euros paid to parents on the birth of each new baby.

READ ALSO: How ageing Italy plans to bump up its birth rate in 2020

Childcare payments

From 2020, payments of between €1,500 – €3,000 will also be made available per family, depending on income, to help with the cost of nursery school or babysitting.

Increased paternity leave

Mandatory paternity leave is increasing from five to seven days. The government said it aims to bring it up to ten days within the next few years, but has so far struggled to fund the scheme.

Every extra day of leave costs €10 million, meaning they'll have to allocate a total of €70 million to the measure in 2020.

Pension reform

Despite months of rumours and squabbling within the government, there will be no change to the recently-introduced “Quota 100” pension system. Italian media reports however that the scheme will not be renewed once the current three-year trial period expires in 2021.

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ITALIAN ELECTIONS

Italian elections: What’s the difference between a majority and ‘super majority’?

Italy's elections on Sunday are expected to produce a far-right government, but how big a majority will it have and what difference does this make? Here's what you need to know.

Italian elections: What's the difference between a majority and 'super majority'?

The right-wing alliance of parties led by Giorgia Meloni’s post-fascist Brothers of Italy is expected to win the September 25th general election by a landslide. 

In fact, the question many people have been asking for a while now is not whether the right will win, but by how much.

READ ALSO: Far-right Brothers of Italy eyes historic victory as Italy votes

The right-wing bloc, led by Meloni’s post-fascist Brothers of Italy and also including Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia, is expected to easily win a big enough share of the vote to take a majority of the seats in both houses of parliament and form a government.

But will they win a simple majority or a ‘super majority’? Here’s a quick guide to how the system works, what the difference is, and why it matters so much.

What’s a simple majority?

A government with a simple majority has the support of just over half of either the Senate or the Lower House – so at least 201 seats in the House and 101 in the Senate (not counting the six senators for life).

Getting a large enough share of the vote to ensure this is already quite an achievement in Italy, where the electoral system is set up to favour coalition governments precisely in order to stop any one party from ending up with too much power (it was, after all, designed after WW2 and the fall of Mussolini’s Fascist regime).

READ ALSO: Is Brothers of Italy a ‘far right’ party?

So under this system, the party that takes the largest share of the vote still needs help – a coalition partner, or several – to get a majority of seats in parliament and form a workable government. This usually requires major compromise and sees parties striking difficult bargains with others from across the political spectrum.

This time, the right-wing alliance looks more than likely to win by a landslide and take a majority between them – in which case it won’t need to seek outside support.

Some political analysts predict that Meloni and Salvini’s parties will win enough seats to form a government on their own, without involving Berlusoni’s more moderate party. They might choose to join forces anyway – but the more parties involved, the less stable a government is.

And, with a smaller number of parties involved, it would basically be easier for a government to pass the laws it wants to pass. (That is of course discounting the still enormous potential for bickering and power plays between even just a few coalition partners.)

So what’s a super majority?

Known more officially in Italy as a maggioranza speciale o qualificate (special or qualified majority) a ‘super majority’ is a two-thirds majority of the seats in both houses of parliament.

The prospect of Italy’s right-wing parties reaching this threshold has been hotly discussed in the media, since a government with such a large majority would be able to make changes to the political system itself, and therefore the constitution, without consulting voters via a referendum.

EXPLAINED: Who’s who in Italy’s general election?

A political force achieving a majority large enough to change the constitution would be unprecedented in Italy’s postwar history, and could bring major changes to the country’s political system – including to how the president is elected, or the powers the prime minister has.

and right-wing parties Brothers of Italy (Fratelli d'Italia, FdI), the League (Lega) and Forza Italia at Piazza del Popolo in Rome, ahead of the September 25 general election.

Forza Italia leader Silvio Berlusconi (centre), set to return to government with Matteo Salvini and Giorgia Meloni. Will they be forming a governmnt together after this election? Photo by Alberto PIZZOLI / AFP

All three leaders of the right-wing alliance have called for Italy to adopt a ‘French-style’ system which would mean the president is directly elected by voters,, instead of by lawmakers as is currently the case. This would mean changing the constitution.

Which scenario is likely?

If the most recent polls are to be believed, the right is on course to easily win a simple majority and possibly go on to reach the two-thirds threshold.

Talk of a super majority came about as the last polls (published two weeks before election day, when a polling blackout began) showed the right-wing alliance was just two or three percent away from achieving the share of the vote needed to give it a ‘super’ or qualified majority of the seats in both houses of parliament.

The right was polling 19 percent ahead of the centre-left bloc, and will need a lead of at least 21-22 percent to secure a qualified majority in both houses, according to projections by Youtrend/CattaneoZanetto & Co.

READ ALSO: An introductory guide to the Italian political system

A two-thirds majority is “possible” for the center-right “if the advantage in both chambers is around 21-22 percent,” Youtrend’s analysis explains.

Such a majority then becomes “probable” with “an advantage over the center-left of more than + 26 percent”, it says.

The winning alliance will need a majority in both houses of parliament, the Chamber of Deputies and Senate, and taking a majority in the Senate is forecast to be more of a challenge.

Recent reforms mean parliament has shrunk by a third: there will now be 400 MPs in the Chamber instead of up to 630, and 200 Senators instead of 315.

A view of the Italian Chamber of Deputies.

Following constitutional reform in 2020, the number of deputies will go from 630 to 400 in the upcoming elections. Photo by Yara NARDI / AFP

Italy has a fiendishly complicated hybrid voting system: about 36 percent of seats in both houses of parliament are allocated in a first-past-the-post vote in single-member constituencies, while the rest are elected by proportional representation via party lists of candidates.

If you want to see what this looks like, try out Sky TG24’s seggiometro, or ‘seatometer’, which allows you to visualise how different election results would translate to seats in parliament.

Is there any chance of a surprise result?

This definitely hasn’t been an election campaign that has kept us on the edge of our seats. The right-wing bloc led by Giorgia Meloni has been expected to win all along – but voter sentiment has apparently shifted somewhat in the two weeks since polling blackout began.

Since the publication of opinion polls ended, support for the left-leaning Five Star Movement appears to have surged while the hard-right League is flagging, according to pollsters interviewed by Reuters this week.

Most said the prediction that the right will take a majority in both houses of parliament and form the next government remains by far the most likely outcome, even if it has been thrown into doubt somewhat by Five Star’s rise.

With Italy’s famously unpredictable politics, and many voters expected to make their minds up only on the day itself, nothing can ever really be ruled out.

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