Less taxes and more productivity to stimulate growth. This will essentially be the central theme around which the confrontation that starts tomorrow between the Government and the social partners will revolve in view of one of the most difficult autumns. Lower taxes to boost investment and consumption: there are many proposals on how to achieve this objective, each minister has his own recipes, the unions and businesses as well. But there is a stone guest at the confrontation table that makes everything difficult if not prohibitive: the scarcity of available resources. How much would it take to significantly reduce taxes and who should reduce them to emphasize their effects on growth? Paul Onofri, economist at the University of Bologna and secretary of the Prometeia Association, he was among the first to suggest, at the beginning of the legislature, the idea of allocate all available public resources to the reduction of taxes and contributions on labor in view of the so-called fiscal devaluation in favor of growth. Here is his opinion in this interview with FIRSTonline.
FIRST online – Professor Onofri, the proposals to reduce taxes according to growth are wasted but few seem to come to terms with the innkeeper. Is your idea of fiscal devaluation with a reduction of taxes and contributions on work and businesses still relevant? But above all, are there the resources?
ONOFRI – That idea, which in theory is still valid today, was born from the possibility that existed two years ago of using the proceeds deriving from the hypothesis of a VAT increase to reduce contributions for everyone. In that way imports would have been reduced and exports would have been favoured. Unfortunately that path, which would have given space to employment and growth without aggravating the public budget, has become very difficult if not impossible.FIRSTonline – Why?ONOFRI – Because the old VAT increase has already been used to reduce the public deficit and now the situation is reversed: on the one hand the recession has worsened and on the other it is to be hoped that the new VAT increase currently scheduled for July 2013 will not be necessary.
FIRST online – Can't the necessary means be found elsewhere to reduce taxes and contributions on labor and businesses?
ONOFRI – In theory, yes. Aid to businesses could be remodeled by taking advantage of the Giavazzi plan which promises savings for the State of 10 billion if unnecessary aid to businesses is canceled. Those 10 billion could be used to reduce the tax wedge for everyone, i.e. the gap between the cost of labor for companies and the real wages of workers.
FIRST online – Minister Fornero suggests using resources to reduce the tax wedge only for companies that value human capital: what do you think?
ONOFRI – I believe it is a proposal that arises from the awareness of the scarcity of resources but it is a politically difficult idea to implement because it would only concern the labor aristocracy with long-term benefits without particular short-term effects on economic activity
FIRSTonline – How many resources are needed to make the reduction of the wedge significant and to reduce taxes on companies?
ONOFRI – For an operation that doesn't want to be a mere facade, it seems to me that the proceeds from the Giavazzi plan are the right measure: 10 billion are needed, otherwise it's better to let it go. And furthermore, the reliefs must concern everyone but without having excessive illusions.
FIRSTonline – Explain yourself better.
ONOFRI – We must not deceive or deceive people: the reduction of taxes and contributions through the reduction of the tax wedge can have beneficial effects on labor costs but more limited in the short term on business investments and final household spending, with non-miraculous consequences on aggregate demand. In other words: if the resources are found, it is a right and appropriate choice but don't expect miracles.
FIRST online – So how do we get out of the recession?
ONOFRI - We have to be realistic: only Dragons can get us out of the trap we've fallen into. Until we manage to significantly cut interest expenditure by normalizing and eliminating the asymmetries between the cost of money for Italian entrepreneurs and what the Germans pay, it will be difficult to really take the path of recovery. If the wing blow from the ECB that everyone expects is missing, there is very little room for hoping that the growth strategy will become reality. Which doesn't mean that something shouldn't be done with an eye to the long term.
