AS DEBT crises in Italy, Greece and Spain deepen and they are looking to Germany for bailout, Chancellor Angela Merkel should urge Italians and Greeks to stop dodging taxes on a massive scale. While Germans pay their taxes, Italians and Greeks are serial tax dodgers. In Italy, hand in hand with widespread corruption, comes tax evasion on a massive scale. Italy’s economy ministry noted in 2009 that half of Italy’s taxpayers weren’t declaring more than $20,000 per year in income, and tax returns were showing Italy’s high-flying lawyers earning on the average barely $60,000 per year. Italians planning their weddings often dodge consumption taxes by paying for catering services in cash under the table. The Associated Press recently observed that ‘easygoing Italians, expecting little from the state, rarely think twice about paying under the table for home improvements, dental work, or even a cappuccino.’
In 2007, the Austrian economist Frederick Schneider estimated that Italy’s shadow economy accounted for more than 22 per cent of the GDP. In 2010, according to the BBC, tax evasion cost the government $142 billion.
In Greece, the people potentially in the best position to help shore up Greece’s tattered finances are keeping a low profile. They are among the wealthiest Greeks — whether shipping magnates, whose tax-free status is enshrined in the constitution, or the so-called oligarchs who have accumulated vast wealth in core areas like oil, gas, media, banking and construction. And mainly, they have done what Greeks have traditionally done: pay as little as they can in taxes. However, in tax-dodging Italy, one of the nation’s top business executives is calling for a wealth tax to bring the country out of the budgetary hole.
A one-time tax to raise Euro 400 billion, as proposed by former CEO of UniCredit, Alessandro Profumo, would solve Italy’s debt problem, thus helping reverse the broader euro crisis. Rich Italians are so wealthy they could afford it. They certainly have no business asking for help from the Germans, who are actually poorer.
Italian business elites, including the head of Confindustria, the business lobby, have reacted surprisingly well to Mr Profumo’s idea. Part of the reason is that Italians are effectively suffering a wealth tax as a result of plunging domestic stock and bond markets. So getting the agony over with has some appeal to Italy’s wealthy. The €400 billion that Mr Profumo proposes would cut national debt from 120 per cent to below 100 per cent of the GDP. That would change market psychology. Equity and bond prices might rebound — meaning that investors could gain more on the market swings than they lost on the tax-hikes.
 What’s more, rich Italians are wealthy enough to bail out their own government. The latest Bank of Italy data show that net wealth was €8.6 trillion, or 566 per cent of the GDP, in 2009 — more than Germany’s €6.1 trillion, or 246 per cent of the GDP. Even if a wealth tax focused only on the richest people, a tax of 10 per cent, collected over a few years, should do the trick.
Mr Profumo hasn’t just presented the tax idea. He has offered to enter politics to help implement it. With Italy’s tax-dodging billionaire prime minister Silvio Berlusconi out of office, the government should put Mr Profumo’s tax plan into practice. A similar wealth tax in Greece will also be a game-changer. Unless, Italians and Greeks pay their shares of taxes, both countries will remain eternally bankrupt and no amount of bailout money can get them out of bankruptcy. Germany should prod the Italian government to put the Profumo wealth tax into practice.
Mahmood Elahi
Ottawa, Canada