Italy is considering a VAT reduction to revive consumption

For more than a month and a half, Italians have been enjoying lack of confinement after spending 55 days locked up in their homes because of the coronavirus. The streets and parks are once again full, but the same is not the case with shops, bars, hotels and restaurants, which due to fear of contagion, the recession caused by the pandemic and the lack of tourists, are half empty. Even in May, when most economic activities resumed activity, there was a drop in consumption of almost 30% compared to last year’s figures, according to data published Monday by the sector association Confcommercio.

In an attempt to reactivate consumption, the Italian Government is studying a temporary decrease in VAT for the sectors hardest hit by the crisis caused by the coronavirus, such as tourism, hotels, textiles and the automotive industry, among others. “It is a hypothesis,” said Prime Minister Giuseppe Conte at the end of his 10-day round of meetings in Rome on Sunday with the various economic and social sectors to prepare the relaunch of the country. “There is concern that consumption has not resumed. The climate of confidence has not recovered, “lamented the head of the government, anticipating that this week the Executive will make a decision in this regard.

It is a “costly” measure, as Conte himself acknowledged, which could last for two years and have an impact on public accounts of between 4,000 and 10 billion euros, according to estimates by ‘La Repubblica’. This newspaper maintains that the reduction could be up to 10 points compared to the 22% currently paid for VAT. Financing would be obtained with a further increase in debt Italian public, which according to forecasts by the International Monetary Fund (IMF) last April, will stand at 155% at the end of the year. This is 20 points more than the figure recorded at the end of 2019.

The possible temporary reduction in VAT for the sectors most affected by the pandemic, inspired by a similar initiative by Germany, has provoked conflicting reactions in the country. It has the backing of the 5 Star Movement (M5E), the main political formation of the Government, while its partner in the coalition, the Democratic Party (PD), does not see so clearly that this is a good idea. “Is a very expensive measure», Recently commented the economy minister, Roberto Gualtieri, of the PD, showing his concern about the impact it would have on the battered public accounts. Ignazio Visco, Governor of the Bank of Italy, asked for a “complete” review of the tax system to face the “great dimension of evasion, illegality and organized crime.”

The president of Confcommercio, Carlo Sangalli, was instead delighted with the idea of ​​lowering VAT. “Many families have seen their incomes reduced and many companies are at risk of closing. There is very little time left: it is necessary to immediately go from the announcements to the results, “said Sangalli, who regretted the delay in receiving the aid promised by the Government, which is suffocating many companies due to the lack of liquidity. Opposition leader Matteo Salvini, federal secretary of the League, was also in favor of “any tax cut.”

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