The professor. Franco Gallo, President Emeritus of the Constitutional Court and former Minister of Finance, was heard by the Finance Commission of the Chamber, in the context of a series of hearings on the tax system and the relationship between the tax authorities and taxpayers. We asked him for some opinions, which he also expressed in Parliament, on the evolution of the Italian tax system, between the implementation of the recent enabling law and the prospects for a more profound reform.
Parliament passed the enabling tax law, which the Government is about to implement. How do you rate this measure?
Many of the principles established by the legislator could be useful for a deep maintenance work that the tax system badly needs. But the law is not a reform of the system. It was necessary for the most urgent adjustments, but it will not make our tax system make decisive substantial progress in the directions in which it would be important to go.
In your opinion, a more far-reaching reform would be needed?
After more than forty years since the last general tax reform, the time has come to start thinking about the construction, in the medium and long term, of a new tax system which, also making use of Community instruments and with a view to creating a European Union, also fiscal, better distribute the tax bases according to a more modern and broader concept of ability to pay. And that, at the same time, gives us back a truer and more substantial progressiveness. The seriousness of the current situation does not allow the crisis of the tax system to be remedied with temporary legislative provisions of a conjunctural type within the somewhat stale logic of the reform of the 3s. The tax system needs to be rethought and with it the role of an taxing state that aims at greater distributive justice and, therefore, at a more equitable distribution of wealth, in the wake of the principles established by articles 53 and XNUMX of the Constitution.
In fact, the progressiveness on which the reform of the 60s and 70s was based has gradually faded away, with the loss of centrality and all-inclusiveness of the personal income tax.
The Irpef in force in Italy today is outside any rational scheme, fragmented as it is and limited, practically, only to income from work. It is unable to perform the essential function that progressiveness must have in a tax system, that of reducing inequalities. To obtain this result, fundamental from an ethical and social point of view, but also essential for the good performance of the economy, it is necessary to rethink the principles of the tax system in the light of the transformations that the world has undergone in recent decades. A recent survey commissioned by the European Commission showed that Italy is the second country in Europe in terms of inequalities and the distribution of income and wealth. Furthermore, the gap between generations is increasingly widening with the shift of wealth towards the older population. Apart from the opposing theses of the neo-liberals, many scholars have demonstrated how a society with growing inequalities destabilizes the economy and brings back the level of well-being of the population. Inequalities and economic development, therefore, are inversely proportional. And it is precisely the lack of distribution deriving also from the distorted use of the fiscal instrument that depresses growth, because they reduce consumption and productivity, and make the system as a whole less efficient.
So, what can be done to re-launch a true progressiveness of the tax system?
To build the foundations of a new tax system, we need to start from an analysis of the reasons that have displaced the current one. The growing opening of markets, the absence of a European federal union and ever-widening globalization have stimulated tax competition between countries. This has favored discriminatory and advantageous taxation in particular for capital income and financial income, with the consequent concentration of progressive taxation only on income from work and sole proprietorships. In these conditions, a State that wants to intervene against inequalities must rethink the objects of its intervention. The markets value only material, financial and patrimonial goods and not also the goods which, although not subject to exchange, are bearers of those moral values that only a regulating and redistributing state can identify and guarantee. I am referring to the fundamental and universally recognized goods, which constitute a necessary condition for there to be social justice, such as longevity, physical integrity, the environment, health, access to both quality health services and knowledge in the course of an entire existence, the standard of living, personal, family and social life, identity, including religious identity. Alongside these goods, there are others, which I would call “capacity-goods”, i.e. goods (but also positions, conditions and situations) which, although not exchangeable on the market, nonetheless represent a contributory potential on the basis of which the State could found, certain conditions, the tax levy on subjects who have the availability, according to the principle set out in Article 53 of the Constitution. This would also achieve the important fiscal policy objective of avoiding even greater taxation of traditional assets of an income and patrimonial nature, already so heavily burdened by current taxes.
Can you give us some examples?
I am thinking of the use of scarce environmental goods, the emission of polluting gases, the various forms of occupation of the ether, for example the so-called bit tax, the consumption or production or sale of harmful or sumptuary foods, the so-called fat taxes , to the free collection of data carried out in our country by companies in the digital economy to produce income that is then taxed in other states with lower taxation. I am also thinking of those taxes, which economists define as "corrective", the result above all of global international agreements, aimed at offsetting the problems caused by negative externalities, such as, for example, the sale of arms to developing countries and all types of destabilizing international financial flow.
What role do you see for traditional personal taxation in this system?
The new forms of taxation must allow the system to gradually recover that minimum of progressiveness that globalization has helped to undermine. But the personal income tax must logically remain. It is only necessary to partially shift the tax burden from business and employment income and real estate assets to different entities, to new properties that denote specific positions of advantage and satisfaction of economically assessable needs and which lend themselves to contributing to a more equitable distribution of public loads.
What about corporate taxation?
For the taxation of corporate income, our country should make the maximum effort within the Community at least to reduce the strong differences in regime currently existing between Western and Eastern European states. Furthermore, a more transparent system should be built, in which the effective tax rates are not significantly higher than the nominal ones and the gaps between economic results and taxable bases are represented by a few selective measures to encourage growth. For example innovation, productive investments, the localization of new company branches, capital increases. Revenue must also be recovered from the area of purely speculative corporate profits (trading differentials, operations in non-hedging derivatives, etc.), as well as from tax evasion.
Let's go back to Irpef. What evolution should be initiated for the main tax of the current system?
The reformer's primary objective should be to avoid further reductions in household disposable income and, in particular, in the income of the middle class in which consumers recognize themselves and on whose strengthening a recovery in growth should also depend. Up to now, this income has been greatly reduced by what happens on the labor market. Individuals and families, whose main income derives from employment and pensions, are the subjects most caught, together with businesses, in the pincers of the current crisis and the so-called tax wedge. For these subjects, the eventual loss of employment or the impossibility of finding it on a family basis adds up, within the same family, to the costs of inflation and the burden of taxes which they could not evade even if they wanted to. If we do not want to make Irpef definitively wither away, the few resources that governments will gradually be able to find should be destined to implement a mix of interventions in favor of families and not just on a fiscal level. Direct interventions, in particular, to compensate the economic levels of the most needy taxpayers, for whom the system of deductions or deductions for family members proves inadequate. I am thinking of a sort of negative tax, in the form of a tax credit. Furthermore, these interventions should be integrated with the provision of specific social contributions and with the strengthening of family support services. Up to the guarantee of a "minimum social income" for integration, if the conditions of public spending allow it. In this way, there would be achieved not a progressivity in the technical-formal sense based on a high number of brackets and an equally high differentiation of the rates, but a selective redistribution based, on the one hand, on the reduction of the effective marginal rates for the low levels of income and, on the other, on a real differentiation between low and high incomes, pursued with the instrument of contributions to the family nucleus.
In the new tax system that you have outlined, do you also see a place for a wealth tax?
In times like the present, characterized by growing inequalities in the distribution of income and wealth, one could think of the introduction of a single and personal tax on large estates, at a reduced rate, which should aggregate and replace many of the numerous mini -regressive assets existing today. Let us not forget what our reformers of the XNUMXs taught us: the income tax can never be a perfect substitute for the wealth tax and should therefore be supplemented by levies of this kind.
Speaking of our reforming "fathers", Cesare Cosciani considered the reorganization of the financial administration as a sine qua non for the implementation of any tax reform. How do you see the current situation?
Times have changed a lot, financial administration has evolved and taken many steps forward. The fundamental theme, however, remains that of recovering a greater awareness of the fiscal function of the State, at both a political and legislative level. Faced with the urgency of combating tax evasion, a State that fails to control the phenomenon ends up resorting to defensive instruments, i.e. introducing more welcome, faster, easier to apply and predominantly proportional forms of taxation, flat-rate and agreed with the categories of taxpayers "at risk of evasion". Examples of this are the pardons of the past, but, in some ways, also the various income meters, spend meters and sector studies, when applied automatically. A State that regains the fiscal function should overcome this logic of "political" compromise with the categories concerned and focus on a better administrative efficiency of the structures delegated to fight tax evasion. It would be a matter of strengthening all those controls that are based on the traceability of economic operations and, that is, on telematic knowledge of both the patrimonial and financial stocks of taxpayers and the expenses they make, albeit with the limits imposed by the need to respect confidentiality.
