Why Italy’s windfall tax on energy firms ‘doesn’t work’

Italy's economy minister on Wednesday pledged to change a tax on excess profits, after energy giants challenged the law and it failed to bring in expected revenue.

Why Italy’s windfall tax on energy firms ‘doesn’t work’
The headquarters of Italian oil and gas company Eni, near Milan. Energy firms have said they're not concerned about the government's attempt to tax excess profits. (Photo by MARCO BERTORELLO / AFP)

Italy’s government will submit proposals to improve a system of extra taxes on energy companies’ massive profits because it “does not work”, Economy Minister Giancarlo Giorgetti said on Wednesday.

In March, as energy prices began to rise with Russia’s invasion of Ukraine, the previous government led by Mario Draghi began taxing the “excess” profits of energy companies to fund aid for households and businesses struggling with soaring prices.

READ ALSO: How Italy has avoided a huge hike in gas prices – for now

But while profits continue to soar, only “two or three billion” euros look set to be collected out of the targeted 10 billion euros, and “there has been litigation”, Giorgetti told parliament. 

The system “does not work, or works much less well than expected”, said Giorgetti, while presenting parliament with an overview of the 2023 budget.

The new government will make proposals to “try to put in place a system that works and produces results”, said Giorgetti, without giving any details.

The current system of calculating the tax has been contested by energy companies.

Energy bosses also said shortly after the tax was introduced that they were not concerned as the impact on their profits would be negligible.

“The impact for us is zero. It’s something between 7 to 10 million euros,” Italian energy giant Enel’s CEO Francesco Starace said in March.

READ ALSO: Italy’s energy giant reports huge profit as more price hikes expected 

Energy companies across Europe have benefitted from price fluctuations in the market. Last month Italian energy giant Eni posted a better-than-expected net profit of 5.86 billion euros in its third quarter.

The European Commission announced in September it wanted to claim a “temporary solidarity contribution” from producers and distributors of gas, coal and oil.

Italy’s next budget will include 21 billion euros in measures to support households and businesses in the face of high energy prices, confirmed Giorgetti.

The government has taken on additional debt on to finance those measures, meaning Italy raised its 2023 public deficit forecast last week to 4.5 percent of gross domestic product (GDP) – above the 3.4 percent forecast in September.

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Where in Italy are house prices rising fastest?

Property values are expected to continue rising overall in Italy in 2023, but the situation looks much better in some cities than others. Here's how average prices compare.

Where in Italy are house prices rising fastest?

Until 2020 Italy’s real estate market had long suffered stagnation, weighed down by a large number of old, neglected properties which were proving difficult to sell.

But the pandemic turned Italy’s property market on its head, leading to the first increase in house prices for years at the end of the first quarter of 2020.

This trend has held up since, and industry experts cautiously predict further price growth in 2023 – albeit more modest than previously hoped.

Factors putting the brakes on growth include the soaring cost of living eroding households’ purchasing power, rising mortgage interest rates, the soaring cost of building materials, and a shrinking economy.

REVEALED: Where in Europe have house prices and rent costs increased the most?

Mortgages are also expected to become more difficult to obtain in 2023, meaning fewer people able to make a purchase.

But despite the gloomy picture overall, the outlook varies significantly around the country and some cities are expected to see a significant rise in prices this year.

Milan remains by far the most expensive major Italian city for a property purchase, but prices are rising faster elsewhere. Photo by Ron Dylewski on Unsplash

A recent report from Idealista Insights, the property search portal’s research team, looked at changes in the average prices per square metre in property listings in Italy’s biggest cities.

In 2022, the price per square metre “generally increased throughout the country, with ‘exclusive’ neighbourhoods becoming even more inaccessible to the average buyer,” the report found.

But, while bigger northern cities saw rising prices across the board, most southern cities were struggling with “stagnation”, it said.

Based on Idealista’s data, here are the ten most expensive cities to buy property in Italy, in order of the rate at which prices are rising.

  1. Genoa: the Ligurian capital is Italy’s tenth-most expensive city to live in – but prices here are rising faster than anywhere else on average, according to Idealista. An increase of 4.5 percent is forecast for Genoa in 2023, meaning the price per square metre will go from 1,602 to 1,674 euros.
  2. Bologna: Bologna records the second-highest price increase in Italy compared to 2022. The citywide average price per square metre will rise by an estimated 3.9 percent, reaching 3,419 euros.
  3. Verona: in seventh place we find the city of Romeo and Juliet, where the increase in prices is substantial, equal to 3.2 percent. The average cost will rise by around 80 euros per square metre, going from 2,483 to 2,563 euros per square metre.
  4. Milan: Italy’s economic capital will easily remain the most expensive city for property purchases, with prices set to rise by 2.9 percent compared to 2022. The average price per square metre is expected to exceed 5,300 euros, 150 more than now, with significant price variation between city districts.
  5. Bari: The capital of Puglia in the south-east is set to record an price increase of 2.8 percent, with the citywide average price per square metre going from 1,909 euros to 1,962 – making it the ninth most expensive Italian city in which to buy property and the only southern city to record a significant increase. 
  6. Turin: The northwestern city can expect an overall price increase of 1.5 percent, equal to around 30 euros more per square metre for a final price of 1,979 euros on average. 
  7. Florence: The Tuscan capital still has the second-highest prices, and can expect an average price increase of 1.4 percent, with the cost per square metre to rise from 4,128 to 4,184 euros .
  8. Rome: The capital may have some highly sought-after and expensive districts, but overall average prices will remain at around 3,336 euros, up slightly from 3,360 in 2022. This is equal to an increase of just 0.76 percent.
  9. Venice: La Serenissima remains the fifth-most expensive city to buy property again this year as the average price will remain almost unchanged with a reduction of -0.3 percent, meaning the cost per square metre will be around 3,090 euros.
  10. Naples: The southern capital is set to go against the trend, with a -1.5 percent drop in house prices expected. This means the average price per square metre will go from 2,737 to 2,696 euros, a difference of 41 euros.