SHARE
COPY LINK

MONEY

Italy ranked among worst in Europe for tax burden on families

Working parents in Italy face some of the highest rates of taxation among developed countries, according to a new international report.

Italy ranked among worst in Europe for tax burden on families
Italy places a higher tax burden on families with children, according to a new report. Photo by JOSE JORDAN / AFP

Italian employees pay one of the highest rates of tax relative to income of all countries included in a new study by the OECD (Organisation for Economic Co-operation and Development), coming only behind Belgium, Germany, Austria and France.

The OECD report measured the ‘tax wedge’ or tax burden faced by both the employee and the employer in each country last year.

READ ALSO: How much does it cost to raise a child in Italy?

The figure includes income tax paid by workers, and social security contributions, which in Italy are paid by both the employee and employer.

According to the findings, Italy’s tax wedge is especially high for families with children, compared to a single worker with no dependents, ranking fourth-highest in this case among the 38 OECD member countries.

Only France, Finland and Turkey came higher.

In most of the countries studied, there are tax benefits for families with children. That’s because “most OECD countries provide benefits to families with children through cash transfers and preferential tax provisions,” reads the report.

READ ALSO:

But Italy recorded lower than average reductions, with a decrease of just 8.6 percentage points for family benefits – less than the OECD average of 10 percentage points.

That meant Italy ranked as having the fourth-highest tax wedge for an average married worker with two children, amounting to 37.9 percent in 2021, while the OECD average is 24.6 percent.

The Italian government has recently pledged to do more to help families with the cost of living, including by introducing the Single Universal Allowance (L’assegno unico e universale).

However, this payment replaces various so-called ‘baby bonuses’, meaning the government is scrapping lump sums of hundreds of euros previously paid to help new parents cover the cost of starting a family.

Looking solely at the net tax that a worker pays on income, the same category of employee paid an average tax rate of 18.3 percent in 2021, compared with the 13.1 percent OECD average.

In other words, the take-home pay of an average married worker with two children in Italy, after tax and family benefits, is 81.7 percent of their gross wage, compared to 86.9 percent for the OECD average.

The discouraging figures come after a recent report estimated the total cost of raising a child in Italy up to the age of 18 at €321,617.

For a single employed person with no children, Italy had the fifth-highest tax wedge, slipping slightly from fourth place in 2020.

The tax wedge came to 46.5 percent in 2021 for single workers, while the OECD average tax wedge was 34.6 percent.

READ ALSO: How much parental leave do you get in Italy?

The OECD also reports that, in Italy, contributions and income tax account for 84 percent of the tax wedge, compared to 77 percent on average.

Employment taxation has bounced back for most countries in 2021 following the Covid-19 pandemic, the findings showed.

“Increases to the tax wedge in 2021 have more than offset the sharp declines recorded in 2020 and have seen the tax wedge rebound to higher levels than in 2019, before the pandemic,” the report stated.

Taxation rates for Italian workers remain relatively high despite employment taxation reforms in 2021 that included cutting income tax for lower earners.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.
For members

PROPERTY

EXPLAINED: Will the latest change solve problems with Italy’s superbonus?

With lines of credit blocked and renovation work delayed, Italy’s political parties have agreed on further changes to the ‘superbonus 110’. Will this be enough to resolve issues for homeowners?

EXPLAINED: Will the latest change solve problems with Italy’s superbonus?

After weeks of intense back-and-forth, parties have finally agreed on the latest amendment to Italy’s famed building superbonus, the government’s financial incentive offering a rebate of up to 110 percent of the cost of works increasing a property’s energy efficiency or reducing its seismic vulnerability.

The scheme has proven incredibly popular over the two years since its introduction back in May 2020. But access has often been hindered by technical issues, with a number of authoritative political figures, not least outgoing premier Mario Draghi, criticising the bonus for its structural complexity. 

READ ALSO: Italy’s building superbonus: How will it change after the election?

A major issue concerns the credit transfer system, with many banks across the country recently refusing to buy or lend credit, and billions of euros’ worth of fraudulent claims – causing many financial operations, and therefore building work, to be frozen altogether.

These setbacks have left many homeowners concerned about whether they’ll be able to finish their renovation projects in time and even caused some to abandon their plans

Furthermore, as many as 40,000 construction businesses are said to be currently at risk of bankruptcy due to credit transfer blockages. 

Worker standing on scaffolding in Spain.

The latest government measure seeks to reopen lines of credit and save as many as 40,000 businesses from bankruptcy. Photo by Pau BARRENA / AFP

The latest amendment, part of the government’s new cost-of-living-crisis aid package (the decreto aiuti bis), is intended to unclog existing lines of credit and save businesses from folding.

The change was approved by the Italian Senate on Tuesday, with the go-ahead from the Lower House now being the last remaining step before the changes are made into law – deputies are expected to greenlight the amendment on Thursday.

READ ALSO: Italy’s building superbonus: What’s the problem with credit transfers?

So what does the latest amendment entail and, more importantly, how is it expected to affect homeowners using the bonus?

The building scheme’s latest amendment is set to remove joint and several liability (‘responsabilità in solido’ in Italian) for all parties involved in the credit transfer chain, retaining the provision only for cases of “wilful misconduct or gross negligence”.

In other words, should cases of insolvency occur, the parties involved in the transfer of credit will no longer be collectively liable to pay the amount owed unless fraud or serious neglect can be proved. 

Naturally, the measure’s primary objective is to allow for easier circulation of credit in order to restart financial operations. 

It isn’t yet clear however whether the amendment will ultimately save those businesses whose credit had been previously blocked and allow homeowners to complete construction works by the given deadlines. 

Construction worker wiping sweat off his brow.

As things stand, 30 percent of renovation works on single-family homes must be completed by September 30th, 2022. Photo by Valentine CHAPUIS / AFP

On this note, it is worth mentioning that there was no provision made under the amendment to extend timeframes for claiming the bonus.

As things stand, those renovating single-family homes still need to complete 30 percent of renovation works by September 30th and must achieve 100-percent completion by December 31st in order to benefit from the funds.

READ ALSO: Nine things we’ve learned about claiming Italy’s building ‘superbonus’

Those renovating certain other types of buildings, or those in areas with higher seismic risk, have until 2025 to claim.

Looming deadlines notwithstanding, both the Italian Banking Association (Associazione Bancaria Italiana, ABI) and the National Constructors Association (Associazione Nazionale Costruttori Edili, ANCE) have expressed cautious satisfaction over the latest amendment, with the former praising the measure as a “step forward”.

Five Star Movement leader Giuseppe Conte, who was responsible for introducing the bonus while prime minister in 2020, commended the amendment, saying that a solution had finally been found for the “businesses, workers and families who had been forgotten by all”. 

Others aren’t sure however that the latest update will solve the issues for good. 

Notably, the president of the National Council of Surveyors (CNG), Maurizio Savincelli, said the amendment would not fully resolve the credit transfer blockage as “banks will likely wait for new measures, including memos from the Italian Revenue Agency” before they reopen lines of credit.

Please note that The Local cannot advise on individual cases. For more information on claiming Italy’s building bonuses, homeowners are advised to consult a qualified Italian building surveyor or financial advisor.

See more in our Italian property section.

SHOW COMMENTS