I’m in Milan, at the office of the Institute Bruno Leoni, which overlooks the famous Castle Sforza and is almost within shouting distance of the remarkable cathedral.
This evening, I’ll be talking about how Italy should balance its budget by limiting the size of government, and my message will be identical to the one I give American policymakers. Restraining spending is the only pro-growth way of lowering red ink.
Italy actually has a smaller budget deficit than the United States according to OECD data, so that should make their job easier. On the other hand, the economy seems permanently stagnant, so revenues are projected to climb by an average of only 3.5 percent annually (compared to 7 percent in the United States).
Here are the specific numbers. The Italian budget this year is about €822 billion, while revenues are estimated to be about €752 billion. If the budget is frozen at current levels, the deficit disappears within three years. If spending grows by 1 percent each year, the budget is balanced in 2015. And if spending is allowed to grow only 2 percent annually, there is a surplus in 2017. If lawmakers can maintain fiscal discipline in subsequent years, they can begin to reduce the public debt.
This last point is important because Italian politicians are actually considering proposals to either levy a temporary property tax or a temporary tax on all assets, supposedly for the purpose of reducing the nation’s debt.
Some economists might argue that one-off taxes on assets are an efficient way of collecting revenue. After all, taxes on assets punish income that already was earned and do not punish earning income today or in the future. That is true, but such a tax would represent a blatant confiscation of private capital.
If the government is successful, this policy will undermine economic confidence and give Italian taxpayers an additional reason to move their money overseas. And since the politicians can achieve their alleged goal of debt reduction by restraining spending, there is no legitimate reason to steal wealth from the Italian people.