Italian mega-tax would be game-changer

By Hugo Dixon
September 13, 2011

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

An Italian mega-tax would be a game-changer. A one-off wealth tax of 400 billion euros, as proposed by the former UniCredit boss, Alessandro Profumo, would solve Italy’s debt problem, thus helping reverse the euro crisis in general. Italians are so wealthy, they could afford it. They certainly have no business asking for help from the Germans, who are actually poorer. But before such an idea has a hope of being implemented, Silvio Berlusconi would first need to be turfed out.

Italian entrepreneurs, including the head of Confindustria, the business lobby, have reacted surprisingly well to Profumo’s idea. Part of the reason is that every week Italians are effectively suffering a wealth tax as a result of plunging domestic stock and bond markets. The latest austerity programme, which would balance budgets in 2013, hasn’t stopped the rot. Even media reports that Italy was cosying up to China in the hope of getting it to buy bonds hasn’t helped. Yields rose again on Sept. 13 after a poor bond auction.

So getting the agony over with has some appeal to Italy’s wealthy. The 400 billion euros that Profumo proposes would cut national debt from 120 percent of GDP to below 100 percent. That would change market psychology. Equity and bond prices might rebound -– meaning that investors might gain more on the market swings than they lost on the tax roundabout.

What’s more, Italians are frankly quite rich enough to bail out their own government. The latest Bank of Italy data shows that net wealth was 8.6 trillion euros or 566 percent of GDP in 2009 –- more than Germany’s 6.1 trillion euros (or 246 percent of GDP) in 2008. Even if a wealth tax was focused on the richest people, a one-off tax of 10 percent, collected over a few years, should do the trick.

Profumo hasn’t just pushed the tax idea; he’s offered to enter politics to implement it as part of a coalition government. Sadly, that can only happen if Berlusconi quits and, despite all the judicial scandals and economic mismanagement, he is still clinging onto power.

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