The initiative on the tax wedge announced by Renzi adds to those for the total release of public administration debts and the establishment of a guarantee fund for access to credit by small and medium-sized enterprises, which the new prime minister indicated to support the economy.
The reduction of the tax wedge is, therefore, the first fiscal policy instrument that the Government intends to use to boost employment and development. It is not an original idea, however it receives the consent of many observers and economic experts. Even the OECD, and again recently, has called for this intervention to relaunch the Italian economy and the suggestion came precisely from the head of economists of that institution, Pier Carlo Padoan, who today sits in the chair of Minister of the Economy and Finances of the Renzi government.
Nothing else is known, at least for now, about how the announced reduction will take place, only that it will be "double-digit". It seems a step forward compared to the indication of a 5% reduction, which we heard about in the previous Letta government. However, without further details, it is not possible to assess the possible effectiveness of the fiscal policy measure.
First of all, it should be remembered that the so-called tax wedge is the gap between the total labor cost incurred by the company for a worker and his/her net salary. Therefore, a reduction in the tax wedge can be obtained both by decreasing the social security costs payable by the company and by reducing contributions and tax levies payable by the worker. Even the reduction or elimination of Irap on the labor cost component, borne by the employer, can be useful for reducing the tax wedge, in a broad sense.
As for the "double-digit" reduction, the objective can already be reached starting from a 10 percent reduction. The simplest interpretation of Prime Minister Renzi's words, therefore, would suggest the intention to reduce the current difference between the total cost of labor and the worker's net salary by 10%. If this intervention is applied to concrete cases, it could mean, for example, for a worker with an annual gross salary of 25 euros, a reduction in the tax wedge of around 1.700 euros a year, broadly speaking, variable according to the various sectors economic and business situations. In fact, against a gross annual salary of 25 euros, today the worker receives a net income of around 18 euros, costing the company around 35 euros, for a tax wedge of more or less 17 euros.
Renzi did not even explain to the Senate how the Government intends to finance this levy reduction, except with a generic reference to the reduction of state expenditure.
To understand something more, a note released by the Presidency of the Council on Sunday afternoon may be helpful, in order to clarify the scope of some statements made by the undersecretary to the Presidency of the Council, Graziano Delrio, during a television broadcast. “The horizon of the Government – reads the note – is that of a reduction of the tax burden through a remodulation of taxes on financial income and taxes on labour”.
We would have to think about the meaning of "tax reduction" in an economic sense, that is, as a reduction in the ratio between tax revenues and GDP. But it is understood that the Government has used this expression in an atechnical sense, ie to mean a decrease in direct taxation on workers and on the middle class in general.
If this is the case, the Government seems to have said that it intends to increase the levy on financial income as a whole (possibly with relative adjustments between the rates on the various sources of financial income and, probably, also on the various incomes) and, perhaps, also that on higher income from work. In short, in the words of Palazzo Chigi, an intention to increase the progressiveness of the Irpef rates could also be glimpsed.
In Renzi's speech in the Senate, there were few other fiscal policy ideas. He spoke of the tax authorities only to say that the Government intends to intervene on the tax system through the implementation of the fiscal delegation, which Parliament is about to grant him.
He then added that he wanted to implement initiatives "clearly visible to citizens", such as sending the pre-filled tax return directly to the homes of all civil servants and pensioners, also through the use of telematic technologies. This in order to show how the relationship between citizen and public administration can change. The tax authorities must stop being hostile and hostile – said Renzi -, they must not be perceived as a bogeyman, but as a sort of consultant for fair tax compliance. Except, on the other hand, being very harsh towards those who commit crimes or in any case "make themselves liable to administrative sanctions". In these cases - concluded the new head of government - the repression must be very harsh.
Among the possible forthcoming interventions by the Government on the tax administration, we should mention those that could arise from a principle strongly affirmed by Renzi, in front of the senators. "There are sectors of the state - said the new prime minister - who experience the vicissitudes of politics with apparent respect, but with a substantial retrospective thought: governments pass, managers remain".
Instead, Renzi argued, a greater connection should be made between the popular expression of the Government's choice and the managerial structure of the public machine. In other words - he continued - "there cannot exist the possibility of a manager who remains indefinitely and who does the good and the bad times" in the structure that he manages. In short, Renzi has announced, colorfully, that he wants to make extensive use of the instrument of the spoil system, perhaps even to want to extend it further. For the heads of the tax administration offices and the Agencies, this could mean major changes ahead.
