Italy tries to raise tax revenue through stigmatizing tax evaders

It will be interesting to see if they get any additional revenue, but I doubt it. Unfortunately, this isn't really going to be a very useful test because the government is changing its rules to track down tax cheats. From the NY Times:

On a recent morning, Maurizio Compagnone, an employee of Italy’s internal revenue service, stood before a classroom of middle school students in a leafy neighborhood here, preaching the virtues of paying taxes.

“You may think, ‘I’m 13, why should I care about taxes?’ ” he said with earnest enthusiasm as the students looked on, slightly bored. “But you can take a step in the right direction. You can change the behavior of the people around you, your parents and friends.” . . . .

The tax authorities say Italy loses an estimated $150 billion a year in undeclared revenues, while the national statistics authority places the underground economy to be about 17.5 percent of gross domestic product — the third highest in Western Europe after Malta and Greece but before Spain. Other experts place the percentage much higher.

To tackle the issue, Prime Minister Mario Monti’s new $40 billion austerity package, which received final approval on Thursday in the Senate, includes tougher measures that will allow tax officials to peer into Italians’ bank accounts to check declared income against bank deposits — not to mention yacht, car and home ownership — under a new cross-referencing initiative.

The measures also prohibit cash transactions above $1,300 — common in Italy, where low credit-card use keeps private debt low but evasion high — and lower the threshold for which tax evasion becomes a criminal offense. The government has also set an additional 1.5 percent tax on assets repatriated under an earlier tax amnesty, raising the levy for those requesting anonymity.

Italy is filled with colorful anomalies. According to tax officials, nearly half of boats larger than 35 feet are registered to people who declare income of less than $26,000 a year, and 604 airplane owners declared annual income between $26,000 and $65,000. . . .

In spite of Mr. Monti’s approval ratings, there is widespread skepticism that the anti-evasion measures will work. Asked why Italy had had so much trouble cracking down on evasion, Bruno Tinti, a former prosecutor turned journalist specializing in the black economy, had a simple answer: “Tax evaders vote, that’s the problem.”

Italy debt significantly downgraded by Moody's

It apparently is pretty common for leaders of countries to bash bond rating companies when they lower a country's bond ratings. From the UK Guardian:

Italy's sovereign debt rating has been cut for the second time in as many weeks, with ratings agency Moody's citing "sustained and non-cyclical erosion of confidence" as it slashed its forecast for the country.

In a report released after US stock markets closed on Tuesday, Moody's downgraded Italy's government bond ratings from Aa2 to A2 with a "negative outlook", suggesting further cuts could be to come. The move threatens to increase Italy's cost of borrowing, and will add yet more pressure to European finance ministers now wrestling with a financial crisis that has spread across the continent.

Italy's prime minsiter Silvio Berlusconi criticised Moody's rival Standard & Poor's when it cut Italy's credit rating last month, saying the ratings agency's action was "dictated more by newspaper stories than by reality". . . .

Look at Greece's interest rate:

Aid is making the Euro debt crisis worse

Note this point in the WSJ today:

Germany and its Northern European allies believe only intense market pressure can force weak economies to cut spending and improve competitiveness. But Greece has learned that whenever the crisis in Europe's periphery threatens to overwhelm the core, Europe will ignore previous broken promises and step up with a fresh bailout.

Italy now appears to be making the same calculation. The government insists it will fulfill its commitment to balance the budget by 2013, but ministers show no appreciation of the urgent need for structural reforms to address the chronic weakness of an economy that grew on average 0.3% between 2001 and 2010 and experienced a 25% increase in unit labor costs relative to Germany over the same period. Instead, they talk incessantly of euro-zone bonds as a solution to misfortunes they blame largely on external forces. . . .

But this is exactly what I wrote in June:

Greeks apparently believe that they have Europe and the world over a barrel, that they can make the rest of the world pay their bills by threatening to default. Greece’s default would be painful for everyone, but for Europe and the United States, indeed for the world, the alternative would be even worse. If politicians in Ireland, Portugal, Spain, Italy, and other countries think that their bills will be picked up by taxpayers in other countries, they won’t control their spending and they won’t sell off assets to pay off these debts. Countries such as Greece have to be convinced that they will bear a real cost if they don’t fix their financial houses while they still have the assets to cover their debts. . . .

Italy moves to adopt balanced budget amendment to constitution

From the Financial Times:

The measures included a plan to amend the constitution to make a balanced budget mandatory, a second constitutional change that would force “closed professions” to liberalise services, a speeding up of welfare reforms, and other structural reforms designed to boost Italy’s stagnant economy. . . .

The German government has already firmly dismissed a proposal from José Manuel Barroso, president of the European Commission, for an increase in the size of the €440bn European financial stability facility – the eurozone rescue fund. Philipp Rösler, the German economy minister and vice-chancellor, described the proposal as “ill-timed”. . . .

Promising to bail out countries is exactly the wrong solution. It creates no incentive to control spending in countries facing financial problems.

Italian Election Earthquake: Berluscon's dominating win, voters eliminate all Communist and Green Party Members from Parliament

Michael Ledeen has the story at NRO:

Huge, perhaps historic, victory for Berlusconi's "Popolo della liberta' " (which translates a bit awkwardly as "the people of liberty;" maybe it's better to call it "the freedom folks"). It's considerably worse than AP lets on. Berlusconi defeated Walter Veltroni's "Democratic Party" by a full 9 points in both the Senate and the Chamber of Deputies. And since the Italian electoral system gives a bonus to the winning side, the margins are very big and stable: 340 to 241 in the Chamber (with another 36 for a couple of small parties), and 167 to 137 in the Senate (with 5 to three little parties), which was expected to be a photo finish. Eighty percent voted, down about three percent from last time.

The big news is that the Communists are gone, for the first time since the end of the Second World War. Really gone. They didn't win a single seat in either chamber. A lot of famous faces will vanish from Parliament, and it is even possible, although unlikely, that some of the comrades will be forced to join the working class. The Greens are also gone. In fact, there are only six parties in the new Parliament, suggesting that Italy's well on the road to a two-party political system instead of the dreadful proportional electoral model that has destroyed virtually every country where it's been applied. If that happens, a lot of the credit goes to Veltroni, who created a real center-left party and refused to admit the old Left.

Tomorrow's papers will pretend that this didn't happen, and warn that Berlusconi's allies in the Northern League are mercurial and dangerous, and that his majority isn't as stable as it looks. But it is. And there's an even more annoying feature to these elections, as seen by the chattering classes: Berlusconi is an outspoken, even passionate admirer of George W. Bush and the United States of America. Reminds one of the elections that brought Sarkozy to the Elysee, doesn't it? Best to keep that quiet, or somebody might notice that hatred of America doesn't seem to affect the voters in Italy, France or Germany. . . .