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Posts Tagged ‘Italy’

I wrote last year about a tax protest in Ireland, and I wrote earlier this year about a tax revolt in Greece.

But Irish and Greek taxpayers are wimps compared to their Italian compatriots. When Italians decide to have a tax revolt, they don’t kid around. Here are some remarkable details from the UK-based Telegraph.

In the last six months there has been a wave of countrywide attacks on offices of Equitalia, the agency which handles tax collection, with the most recent on Saturday night when a branch was hit with two petrol bombs.Staff have also expressed fears over their personal safety with increasing numbers calling in sick and with one unidentified employee telling Italian TV: “I have told my son not to say where I work or tell anyone what I do for a living.”

As much as I despise high taxes, I don’t think petrol bombs are the answer. But I am glad that at least some of the bureaucrats feels shame about their jobs.

Not surprisingly, the political elite wants people to be deferential to predatory government.

Annamaria Cancellieri, the interior minister, said she was considering calling in the army in a bid to quell the rising social tensions.“There have been several attacks on the offices of Equitalia in recent weeks. I want to remind people that attacking Equitalia is the equivalent of attacking the State,” she said in an interview with La Repubblica newspaper.

Here’s some advice for Ms. Cancellieri: Maybe people will be less likely to attack “the State” if “the State” stops attacking the people.

But don’t expect that to happen. The Prime Minister also demands obedience to “the State” and there’s rhetoric about “paying taxes is a duty” from other high-level government officials.

Saturday night’s attack took place on the Equitalia office in Livorno and the front of the building was left severely damaged by fire after the bombs exploded. The phrases “Thieves” and “Death to Equitalia” were sprayed onto outside walls. It came just 24 hours after more than 200 people had been involved in running battles with police outside a branch in Naples which left a dozen protesters and officers hurt. …There has also been a striking increase in suicides with people leaving notes directly blaming Equitalia and tax demands. Paola Severino, the Justice minister, said: “The economic situation has produced unease but paying taxes is a duty. On one side there is anger and the problem of paying when the resources are scare but on the other side is the fact that they must be paid.” …Mr Monti has vowed to press on even harder this year to recover the lost money. He is due to have a meeting with Equitalia chief Attilio Befera to discuss the situation and he has already said: “We are not going to take a step back, there will be no giving in to those who have declared was against the revenue and therefore the State. We will not be intimidated.”

Keep in mind, by the way, that this is the government that supposedly is being run by brilliant technocrats, yet they are so incompetent that they appoint the wrong people to posts. But the real problem is that government is far too big, consuming one-half of Italy’s economic output.

If Italy’s political class wants to improve tax compliance, they should listen to the IMF and academic economists, both of whom point out that lower tax rates reduce incentives for evasion and avoidance.

It also would help to shrink the burden of the public sector. Unfortunately, as is the case with most other European nations, “austerity” in Italy mostly means higher taxes, not less spending.

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Last January, I identified five things that worried me for 2011. Here’s what had me concerned, along with some ex post facto analysis about whether I was right to fret:

1. A back-door bailout of the states from the Federal Reserve – Thankfully, I was way off base with this concern. Not only was there no bailout, but Congress even got rid of Obama’s wretched “build America bonds.”

2. A front-door bailout of Europe by the United States – The bad news is that there have been bailouts of Greece, Ireland, and Portugal via the clowns at the IMF. The good news is that the bailouts haven’t been as big or extensive as I originally feared.

3. Republicans getting duped by Obama and supporting a VAT – I was needlessly concerned about a VAT sellout, but I was right to worry about tax increases. GOPers repeatedly expressed willingness to surrender, notwithstanding their anti-tax hike promises.

4. Regulatory imposition of global warming policy – The EPA has been busy imposing lots of costly regulation, but it appears that my fears on this issue were misplaced.

5. U.N. control of the Internet – As far as I can tell, the statists did not make any progress on this issue, so my concerns were unfounded.

This year, I’m not going to put together a list of things that should make us worry. After all, we should always be concerned. As Thomas Jefferson is reported to have warned, “eternal vigilance is the price of liberty.” And Gideon Tucker correctly noted that, “No man’s life, liberty, or property are safe while the legislature is in session.”

Instead, I’m going to come up with a list of predictions. But I won’t try to predict the economy. As I already have explained, economists are lousy short-term forecasters. If we actually knew what was going to happen, we’d be rich.

So here are some policy and political predictions for 2012.

1. Obama will win reelection – Unless I’m wildly wrong, Romney will be the nominee, and he is a very uninspiring choice. That gives Obama somewhat of an advantage. More important, I think the unemployment rate will continue to drift downwards (even if only because workers get discouraged and drop out of the labor force) and that will allow Obama to claim – with lots of help from the media – that his policies have started to work.

2. Greece will drop the euro – Politicians have three ways of financing government spending. They can tax, they can borrow, and they can print money. Nations such as Greece already impose stifling tax burdens and further tax increases probably would reduce revenue because of the Laffer Curve. Nations such as Greece already are so indebted that nobody will lend them money, especially since they’ve already defaulted on existing debt payments. This means Greece has to go with the final option and drop the euro so it can print lots of drachmas.  (Greece could solve its problems by cutting spending, of course, but let’s not engage in ridiculous fantasy).

3. At least one major European nation will default – Yes, the Baltic nations have shown it is possible to make real spending cuts and restore fiscal stability, but I don’t expect other European nations to learn from those success stories. So the only question is whether nations such as Spain and Italy default right away, or whether they get additional bailouts that set the stage for even bigger defaults in the future. The answer probably depends on Germany, and I’m guessing Merkel will finally do the right thing (if only for political reasons) and reject additional bailouts.

4. China and Japan have major problems, but will survive 2012 without crisis – I’ve already written that I’m not overly impressed by China and that I think there’s a bubble in the Chinese economy. And I’ve commented on the enormous debt burden in Japan. But even though I think both nations are very vulnerable to economic trouble, I’m going out on a limb and predicting that they’ll make it through this year without a major problem.

5. The Georgia Bulldogs will win college football’s national championship, demonstrating that there is justice in the universe.

P.S. I have been somewhat accurate in my election predictions and I’ve been getting some requests to predict what will happen in Iowa. If I get motivated, I may do that on Tuesday morning.

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I periodically write posts about “Great Moments” in government. These usually feature some absurd example of stupidity and incompetence that only is possible when the world’s least competent people have power to coerce.

Examples include:

EU rules banning the selling of items by quantity (can’t have people buying a dozen eggs, for instance);

EEOC rules hindering trucking companies from weeding out drunk drivers (after all, alcoholism is a disability);

European courts ruling that the ability to watch free soccer broadcasts is a human right (if it’s already the job of government to provide you with housing, healthcare, and employment, why not?);

A local politician in Maryland wanting a licensing process to be a bum (I’m at a loss for words), and;

Virginia bureaucrats making it a crime to rescue injured wildlife (better to let Bambi suffer at the side of the road).

If you like high blood pressure, there are more examples here, here, here, here, here, here, here, and here.

But here’s an example from Italy that may be even more astounding.

First, some background. The political elite in Europe is celebrating because the former Italian Prime Minister has been forced from office and replaced with Mario Monti, a former member of the European Commission who supposedly is one of the “best and brightest” and thus can bring technocratic efficiency to Italy.

So what do we see from this new government of allegedly competent technocrats? Well, you won’t believe me, so read this excerpt from the UK-based Guardian.

Italy’s new, “technocratic” government of highly qualified bankers, admirals and professors was missing a minister today after he vanished into a fog of misunderstanding. Earlier this week, agriculture expert Francesco Braga, a professor at the University of Guelph in Ontario, Canada, was surprised, if flattered, to be told from Rome that he had been named junior agriculture minister in the new Italian administration. He had, after all, spent the last 28 years living outside his native land. Whatever doubts the professor may have had were swept away in what he called an “avalanche of congratulations”. Among the first to express delight was the Parmesan cheese manufacturers’ association. Back in Rome, the agriculture minister, Mario Catania, declared in irreproachably technocratic fashion that his new deputy would “bring value added”. He admitted that he had not actually spoken to the distinguished Italo-Canadian professor, but added: “I know him by reputation.” All of which must have been pretty confusing for Altero Matteoli, the infrastructure minister in Italy’s last government, who had warmly recommended for a post in the new government one Franco Braga, also a professor, but of construction engineering at Rome’s Sapienza University. “To tell the truth,” Matteoli was quoted as saying in the daily Corriere della Sera: “I recommended him for infrastructure, but they put him in agriculture.” Only they – whoever they were – found a professor with a similar name who would have known something about farming. Which perhaps explains why Franco Braga, an expert on anti-seismic building techniques, was refusing either to answer his telephone, or be sworn in to a job for which he is wholly unqualified.

There are several levels of jaw-dropping incompetence in this story, including the fact that the job at the Agriculture Ministry was offered to the wrong person and the supposed right person was recommended for a different job at the Infrastructure Ministry .

But the real moral to the story isn’t that the technocratic geniuses screwed up an appointment. It’s that Italy is suffering from too much government and a genuinely competent group of technocrats would abolish useless government bureaucracies.

But that’s not happening, so don’t expect a turnaround. Heck, Italy should sack the new government and give the job of Prime Minister to the former porn star who used to be in the Parliament. At least that would provide entertainment value.

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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.

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Thanks to decades of reckless spending by European welfare states, the newspapers are filled with headlines about debt, default, contagion, and bankruptcy.

We know that Greece and Ireland already have received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the “Most Likely to Appease the Political Class” Award.

But which nation will be the next domino to fall? Who will get the next direct bailout?

Some people think total government debt is the key variable, and there’s been a lot of talk that debt levels of 90 percent of GDP represent some sort of fiscal Maginot Line. Once nations get above that level, there’s a risk of some sort of crisis.

But that’s not necessarily a good rule of thumb. This chart, based on 2010 data from the Economist Intelligence Unit (which can be viewed with a very user-friendly map), shows that Japan’s debt is nearly 200 percent of GDP, yet Japanese debt is considered very safe, based on the market for credit default swaps, which measures the cost of insuring debt. Indeed, only U.S. debt is seen as a better bet.

Interest payments on debt may be a better gauge of a nation’s fiscal health. The next chart (2011 data) shows the same countries, and the two nations with the highest interest costs, Greece and Ireland, already have been bailed out. Interestingly, Japan is in the best shape, even though it has the biggest debt. This shows why interest rates are very important. If investors think a nation is safe, they don’t require high interest rates to compensate them for the risk of default (fears of future inflation also can play a role, since investors don’t like getting repaid with devalued currency).

Based on this second chart, it appears that Italy, Portugal, and Belgium are the next dominos to topple. Portugal may be the best bet (no pun intended) based on credit default swap rates, and that certainly is consistent with the current speculation about an official bailout.

Spain is the wild card in this analysis. It has the second-lowest level of both debt and interest payments as shares of GDP, but the CDS market shows that Spanish government debt is a greater risk than bonds from either Italy or Belgium.

By the way, the CDS market shows that lending money to Illinois and California is also riskier than lending to either Italy or Belgium.

The moral of the story is that there is no magic point where deficit spending leads to a fiscal crisis, but we do know that it is a bad idea for governments to engage in reckless spending over a long period of time. That’s a recipe for stifling taxes and large deficits. And when investors see the resulting combination of sluggish growth and rising debt, eventually they will run out of patience.

The Bush-Obama policy of big government has moved America in the wrong direction. But if the data above is any indication, America probably has some breathing room. What happens on the budget this year may be an indication of whether we use that time wisely.

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