What effect Will the reform of the taxation of savings, which is once again on the government's agenda, affect savings? To discuss it, it is necessary to put aside the cause-effect determinisms that are ill-suited to the complexity and interdependence of financial markets and to the cognitive distortions that characterize the behavior of the subjects who operate in them, including savers.
Here are 11 reflections on the draft delegation for the tax and welfare reform developed by the Ministry of the Economy (which at best will lead to changes starting from 2012) and on the stabilization maneuver decree law 98/2011 published in the Official Gazette on July 6th (this is the one concerning the increase in stamp duty on securities deposits) taking into account the amendments presented by the rapporteur on July 13th to the text in the process of being definitively approved by the Chamber.
1) If it is confirmed that the 12,5% rate will remain only for government bonds and postal bonds, it is difficult to imagine that a higher rate could be applied to all equivalent bonds such as government bonds of other countries of the European Union and the bonds of supranational entities. This in order not to introduce discrimination which is difficult to reconcile with Community principles. Therefore the possible detrimental effect on savings will not concern a far from negligible slice of the tools typically used by savers.
2) Most of the volumes traded on Italian government bonds is due to negotiations by institutional lords, therefore completely indifferent to changes in withholding taxes applied to private individuals. This applies not only to MTS, the wholesale market by definition, but to a large extent also to the main retail market, the MOT. The average value per contract of Italian government bonds traded on the MOT between January and May 2011 was 62.592 euros, an amount beyond the reach of most savers and which therefore could signal a substantial presence of institutional operators. Ultimately: the prices of BOTs, CCTs and BTPs are determined by the exchanges of banks, mutual funds, hedge funds and pension funds (all lordists!), not by Mr. Rossi's negotiations.
3) It is more possible (although not certain) that the passage of the withholding tax from 12,5% to 20% will have effects on the prices of bank bonds and corporate bonds in general that will suffer it. The precise weight that savers have in the trading of these bonds is not known, but it is certainly higher than that of government bond trading, given that the average value per contract of bank bonds traded on the MOT is 15.878 euros. How might any adjustment work? Let's take two securities that are similar in terms of coupon, solvency and duration, and listing market (MOT): one destined (apparently) to remain taxed at 12,5% and the other destined (apparently) to pass to the withholding tax of 20%. The first is the BTP maturing 1 February 2018, which at the prices of Friday 1 July discounts an effective gross yield of 4,36% gross and 3,79% net. The second is Enel expiring June 12, 2018, which offers an effective yield of 4,05% gross and 3,47% net. Given that, as mentioned, for the BTP the price and the net yield are indifferent to the tax treatment for savers because they depend on the decisions of the lordists, it is clear that to maintain that 3,47% net in the presence of an increase in the withholding tax, the price of Enel bonds will have to go down. But are we sure that this will have to happen? No, because the trend in the price of the Enel bond will also be determined by many other factors, such as, for example, the perception of a greater or lesser relative solvency of the electricity group compared to that of the Italian state. Without forgetting that even among the subjects who negotiate Enel bonds there are institutional lordists who, in the event of downward pressure on the price of the bond in question due to the search for a higher gross yield by net savers, could enter into purchases and realign almost instantly the listing to the previous situation. Whether or not the price remains unchanged, other conditions being equal, what is certain (taking account of the clarification in the next point) is that the future net coupon flows of those who are already bondholders of a security subject to the withholding increase will be lower . It is to be discussed whether this reduction is discounted immediately with a drop in the price of the security or diluted on the coupons accrued and collected from the entry into force of the reform to maturity.
4) All these arguments can make sense if the reform will have immediate effect on securities currently held by Italian savers, obviously only for future income. If it were to come into force only on new issues (an unlikely hypothesis because it would somewhat postpone obtaining the incremental revenue to which the Government is aiming), another scenario would open up which I am omitting here.
5) If it is difficult to predict the impact of the new taxation on the prices of fixed rate bonds, instruments on which it is possible to make some projections, let alone when there are shares, derivatives (warrants, futures, options and so on) or bonds variable rate, or in currency, or structured. With these instruments there will be a greater future tax burden for their owners, but their future returns (even net of the new taxes) are a function of a multiplicity of variables on which it is difficult to speculate. If then the reform - as it seems - will also concern other income as well as capital income, it suffices to remember that when the capital gains tax came into effect at 12,5%, on 1 July 1998, the index of Piazza Business rose before (+58,7% in 1997), during (+43% in 1998) and after (+30,6% from the beginning of 1999 until the bursting of the New Economy bubble in March 2000) that event. Which therefore, in a euphoric market, went unnoticed.
6) Still if the differentiation for government bonds is confirmed, the reform should regulate the taxation "for transparency" of mutual funds (which pass to 20%) as regards the portion of the portfolio invested in government bonds. Otherwise it would not be understood why by buying these instruments directly you pay 12,5% and instead through a mutual fund 20% (now in cash, based on the legislation that came into force on 1 July 2011).
7) If, as it seems, pension funds remain taxed at 11%, they will strengthen their tax privilege over financial instruments. The issue of tax incentives for long-term savings plans other than pension funds remains to be discovered, on which a hint has appeared among the meager information available. But for this purpose, as Luigi Zingales wrote in the Sole-24 Ore of 3 July, mutual funds truly dedicated to the long term, characterized by low turnover, need to be created.
8) Chapter of bank deposits: even here it is not said that the reduction of taxation on interest from 27 to 20% should translate into a higher future net return for their holders. Because it is by no means certain that gross rates will stay the same! In fact, these depend on the general trends in short-term rates and on the commercial policies of the various banks. What is very probable is that the online banks that in recent years have focused on repurchase agreements as a contractual formula for liquidity management to take advantage of the 12,5 rate instead of 27% of deposit accounts will have to review their choices (yes see the interview with the managing director of Fineco Bank Alessandro Foti, in the Corriere Economia of 11 July on page 17). Also because repurchase agreements for amounts exceeding 50 euros require a securities dossier which is now subject to super stamp duty, deposit accounts do not (see also point 9 below).
9) We arrive at DL 98. The amendments presented on 13 July strongly dilute the effects on savings that I had initially analysed. There will be no convenience in transferring small savings from securities dossiers to bank deposits (net of what the convergence to 20% of tax rates on financial income will entail), because the stamp duty is destined to remain equal to 34,2, 50 euros for administered deposits with balances of less than 50 thousand euros. For securities deposits with balances between 149.999 and 70 euros, the stamp duty immediately goes to 230 euros (2013 euros from the beginning of 150). For securities deposits with balances between 499.999 and 240 euros, the stamp duty immediately goes to 780 euros (2013 euros since the beginning of 500). For securities deposits of €780 or more, the stamp duty immediately rises to €1.100 (€2013 since the beginning of 98). In essence, there will be (contrary to what the text of Decree Law 20 published in the Official Gazette implied) the convenience of leaving marginal securities deposits active rather than closing and concentrating them. This fragmentation of the securities dossier raises the need for a single, organic and efficient reporting of the family's financial wealth, which can be achieved, for example, with the Toolbox contained in the training offer of YouInvest. We must then ask ourselves what will be the consequences of a possible unified rate of XNUMX% on bank bonds, in recent years a privileged and controversial (also according to Consob) source of financing of credit institutions towards savers. If and when the reform comes into force with this measure, bank bonds will no longer have any tax advantage over deposits, and will continue to expose intermediaries to bureaucratic and organizational burdens (prospectuses and compliance). Banks could therefore find it convenient to push the accelerator on simpler and more guaranteed bank deposits. But I wouldn't want any bank to invent structured deposits! A final reflection on securities deposits: for several decades the economic policy of various governments has tried to promote popular shareholding, as happened on the occasion of privatizations. But even cooperative banks have by definition a myriad of small shareholders. The stamp duty increase represses the existing forms of public share ownership. Is this one of the effects desired by the Government?
10) Some banks already cover the stamp duty on the securities dossier at their own expense. This is the case of some online banks that offer repurchase agreements at rates that are competitive with those of deposit accounts. We need to see how these banks will move in the light of the immediate increase in stamp duty for dossiers with deposits exceeding 50 thousand euros: whether they will opt to offer deposit accounts instead of repurchase agreements (as seen in point 8), or if they will keep the burden on their income statements, or if they will offload it entirely on the customer, who could thus see a higher onerousness of repurchase agreements compared to that of deposit accounts (which will continue to be subject to stamp duty of 34,2 euros also for amounts exceeding 50 thousand euros). It is also necessary to understand what will happen to the sub-registered accounts, with which several people (typically from the same family, but not only) hold various securities dossiers that "clustered" refer to a main account and a single account statement. The increase in stamp duty will raise the attention of the tax authorities on these dossiers, which can lend themselves to evasive practices. Finally, I would like to humbly remind you that an investor wishing to avoid paying stamp duty could transfer his managed savings completely legally to a bank or intermediary resident abroad. Thinking about it could above all be investors with securities portfolios exceeding 500 thousand euros, who from 2013 will find themselves paying stamp duty of 1.100 euros a year. If they took this decision, however, they would have to fill in the RW framework of the Unico model every year, calculate and pay the taxes on the financial income themselves, or go through a trustee. Is it worth it? The answer is up to you.
11) For years I have heard various entrepreneurs ask themselves: “Why should I invest my savings in my company? To see them taxed on returns at 27% of IRES plus IRAP when instead if I invested them in financial assets I would be taxed at 12,5% without making any effort?”. The reform under discussion could make this alternative less efficient. But only for financial instruments other than government bonds and equivalent. The not entirely illegitimate alibi of entrepreneurs unwilling to invest in their own company can therefore resist. This is in my view one of the main weaknesses of the announced reform.
*Marco Liera is the site director YouInvest – The School For Investingfrom which this article is based.
