Proceedings at this National Roundtable examining the link between fiscal equity and growth in Italy got underway with the observation that, according to the Italian Constitution, taxation, as well as enabling the delivery of services and benefits essential to the welfare and progress of citizens, should also help overcome social inequalities through the application of redistributive justice criteria. This principle of “fairness” in setting tax levels takes on an even greater significance when, as is currently happening, social and economic disparities widen. Indeed in Italy, as in most OECD countries, inequality in income distribution increased considerably in the first half of the 1990s, stabilizing in the following decade and tending since towards widening further on the back of the current crisis.
Amid the vicissitudes of a difficult economic situation like that now being experienced, the demands of taxpayers for fairer taxation have become even stronger and more insistent, with calls not just for the application of progressivity, but also for an improved capacity on the part of the State to recover the huge amounts lost through tax evasion and avoidance that become a “hidden tax” on honest taxpayers.
It was stressed that the fight against tax evasion must also, necessarily, be accompanied by efforts to foster the spread of a perception that the tax bill is being divvied up according to criteria of substantive as well as procedural equity, since it is only through clearly perceptible evidence of fair treatment that virtuous conduct can be promoted and encouraged. In this regard, it was felt that rewarding more transparent taxpayers or providing for some form of redistribution of resources retrieved in the fight against tax evasion would be useful mechanisms for further spreading and cementing a culture of legality, including with respect to taxation.
Playing a no less significant role in nurturing a perception of fairness among individual and business taxpayers is the standard of services provided by the State (and local authorities) vis-à-vis the tax burden shouldered. It was observed, in this respect, that the deficiencies and lags under which Italy labors result also from a growth in excessive and inefficient public spending to the detriment of the private-sector economy.
With the discussion turning from the issue of fair taxation to that of public spending, the question of growth also reared its head, not just because of the clear stimulus effect that tax policies can have on demand and economic growth, but also for less direct but no less meaningful reasons. First and foremost, a high tax burden reduces the competitiveness of Italian firms vis-à-vis those of other European and non-European competitors, and also detracts from the appeal to potential foreign investors (not so much or solely because of levels of taxation, but also owing to the uncertainty and volatility that characterize Italy’s national taxation policies). Secondly, in certain sectors and geographic areas, evasion systematically distorts competition, thereby penalizing or even pushing out of the market more tax-compliant businesses. Lastly, evasion tends by definition to be accompanied by serious wrongdoing such as corruption, money laundering, and illegal employment, all of which have pervasive effects on the level and quality of Italian industrial growth.
In conclusion, the participants emphasized that given the economic crisis has made the links between taxation, equity and growth even more evident, the challenge for the State is to recalibrate the taxation system coherently so as to alter – in the spirit of real fiscal federalism – the relationship between central and local administrations, between the taxation of “persons” and “things” (environmental taxation, for example), and between the tax treatment of individuals and households, but also so as to make substantial inroads into simplifying tax systems per se.