Analysis
Salvini’s Russia-style flat tax would punish most Italians
The Lega favors a 15% tax on the rich and the poor alike, a policy party leader Matteo Salvini has placed at the center of his government’s agenda. The plan looks much like Putin’s 13% flat tax, which has left 52% of Russians struggling to feed themselves.
It is not a given that the flat tax—the 15% tax for rich and poor alike—will see the light of day in this legislature. Emboldened by his 34% election take, Salvini has put it back at the center of the government’s agenda, but it’s not an implausible hypothesis that this is merely an electoral ploy.
Snap elections are no longer a taboo topic, and the aspects which carry the greatest weight in the choices of the government (and those of the future government) are the unfavorable economic situation and the state of public finances. This, as we know, is being carefully monitored by Brussels—we have never been closer to the start of an infringement procedure for non-compliance with the debt limits—and, most importantly, by the capital markets (as the spread is back in the danger zone).
Meanwhile, at the level of pure principle, one must seriously question whether such a measure would actually respond to the real needs of the country and the working class, who are the vast majority of the population and who have borne the brunt of the costs of the crisis in recent years (and the very same people who, in many parts of the country, voted for the Lega on May 26).
Among European countries, Italy is in the top three in terms of social inequality and poverty, a dubious honor we share with Romania. The numbers are alarming, a direct result of the prolonged crisis and the mindless attempts at managing it, centered on draconian cuts to the welfare state and on labor devaluation policies: the richest 5% of the population owns assets and financial resources equal to those of the bottom 90%. Five million people live in conditions of severe material deprivation (a number which rises to 10 million if we include the “relatively poor,” and 17 million if we also count those at risk of social exclusion). This is where we are now: those who don’t work are poor, and those who do work remain poor all the same.
One does not need a degree in economics to realize that in the face of such a dramatic situation, the only remedial action to rebalance the system would be to make resources flow from the top to the bottom by means of a more progressive taxation scheme—even including the introduction of a wealth tax on large fortunes.
In addition, it is universally recognized that it was precisely the gradual “erosion of tax progressiveness” at the core of the explosion of inequality in Western countries, and that the various experiments with (more or less) “flat taxes” conducted in recent years in a number of former Soviet countries have led to the same effect, starting with Russia itself. This is the model that most appeals to Salvini—and to Berlusconi, the living example of the “magnificent and progressive fate” (as Leopardi put it) brought by equal taxation for those who have a lot and those who have (almost) nothing.
Since 2001, Russia has introduced a tax regime for individuals based on a flat rate of 13% (24% for businesses), among the lowest in the world. Nowadays, it’s a country where 52% of families can barely afford food and clothing, and the richest 3% of the population owns 89% of the financial resources (bank deposits, bonds and shares), all with a rather modest average annual growth (a little above 1% in 2017 and 2018, after a severe recession during the previous two years). Behold the “miracle” of the flat tax: an abyss toward which the Reaganites, still going after 30 years, would like to lead our country as well.
Turning back to Italy, the recent ISTAT estimates on GDP growth (+0.1% in the first quarter, down 0.1% from the first quarter of 2018) and inflation (+0.1% from last month and +0.9% year-over-year in May) are delivering a simple message: the Italian crisis is a crisis of demand. Unemployment and underemployment, low wages and the gap between the north and south that has only gotten wider in recent years are enacting a heavy toll. A classic Keynesian scenario.
We can only come out of the crisis with expansionary fiscal policies, which, in the current overall conditions, can only be financed through a transfer of resources from those who have more (i.e. much more) to those who have less (and much less). In effect, what is needed is the reduction of inequality to boost the economy, which would also have a positive effect on the public coffers. However, this is the exact opposite of what Salvini would like to serve up, with the complicity of the Five Stars.
Originally published at https://ilmanifesto.it/flat-tax-un-amo-elettorale-della-lega-modello-putin/ on 2019-06-05