MNI SOURCES: Italy Mulls Property Tax Hike To Dodge VAT Rise

By Silvia Marchetti

     ROME(MNI) - The Italian government is prepared to boost property taxes to

avoid a E23 billion automatic increase in value-added tax next year, sources

told MNI, with officials hoping regions will take the political flak for the

move but also considering an extension of the levy to primary residencies if

necessary.

     Two regions, led by governors from the governing coalition's League party,

have signed deals with the central government granting them more autonomy in

setting taxes, and several more are negotiating. This has prompted hopes in Rome

that rises in property levies, a share of which is handed over by the local

administrations to the government, will allow it to avoid the boost in VAT

stipulated in "safeguard clauses" agreed with the EU in talks averting an

Excessive Deficit Procedure last year.

     As a last resort, the government is also secretly debating whether it could

re-introduce a controversial tax on all primary residences, scrapped in 2015 by

the centre-left administration of Matteo Renzi, sources said. Currently property

taxes are levied only on second homes, businesses and rural land.

     The coalition's far-right League and populist Five-Stars Movement have both

previously publicly ruled out a move to property taxes on first homes. But their

comments on the matter have become more ambiguous ahead of the European

parliamentary elections, even if sources said that such a measure, which would

raise roughly E25 billion per year, would only be taken if there were no other

way of avoiding a hike in VAT.

     --DOCUMENT DUE BY OCTOBER

     "We're starting to analyse the picture. It's still a work in progress, but

it is likely that there will be some changes to the current property taxation

scheme nationwide, which will be better defined and set out in the next budget

document due in September-October containing our key policy measures," said an

official with ties to the League.

     "Decentralisation is key to greater territorial efficiency, we need to move

forward with this goal, which is part of the government's Contract for Change,

and grant more autonomy to local bodies," said the League source.

     The International Monetary Fund recently called on Italy to re-introduce a

tax on primary residences as the only means to avoid higher VAT while keeping

deficit under control. The coalition has pledged to cut taxes and avoid the

mandatory VAT spike.

     "These are thorny issues which need a detailed analysis of the property

market outlook before any decision can be taken, so we have all summer to look

into possible adjustments to taxation which, in any case, would be gradual and

light," said a Five-Stars Movement source, adding that potential increases would

be "selective" and "would not weigh on small businesses and low-earning

families."

     In its talks with the EU, the government committed to raising VAT by around

E23 billion in 2020 and by almost E29 billion in 2021 in the absence of

alternative measures. Otherwise, the deficit would climb to 3.5%, placing Italy

in breach of EU rules.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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