Italy Populists’ New Bone of Contention: Expanded ‘Flat Tax’

(Bloomberg) -- Deputy Premier Matteo Salvini triggered a new dispute within Italy’s fractious populist government, pledging to expand a so-called flat tax to millions of families, a move his coalition partner ridiculed as a page out of ex-premier Silvio Berlusconi’s playbook.

With Italy’s economy expected to effectively stagnate this year, Salvini, leader of the anti-migrant League party, is butting heads with the Treasury over numbers and clashing on policy with fellow Deputy Premier Luigi Di Maio, leader of the anti-establishment Five Star Movement.

Salvini blasted as “outlandish” a reported Treasury estimate that a flat tax for families would cost 59.3 billion euros ($67.3 billion). “We’re not in the Superenalotto,” Salvini told RTL 102.5 radio Monday, in a reference to the Italian lottery which hands out massive jackpots. Salvini put the cost of his proposal at between 12 billion euros and 15 billion euros in the 2020 budget.

Italy’s Treasury has not yet estimated the cost of the flat tax proposal, Finance Minister Giovanni Tria told reporters in Rome on Monday, saying that figures reported in the press are “without foundation.”

Landmark Proposals

The League and Five Star are striving to differentiate themselves to voters ahead of European Parliament elections in May, with each side pushing for its own landmark policy proposals. That’s fueling confrontations over everything from fiscal policy to immigration to trade accords with China.

“We’re working so that the flat tax also involves families, employees,” Salvini said. “We’re convinced that if you lower taxes, the state receives less in the first year but from the second it receives more, the money is spent and invested.”

The League’s plan -- a tax set at 15 percent for families earning up to 50,000 euros -- is part of the government contract signed by the League and Five Star, and would concern 50 million people including 35 million taxpayers, Salvini economic adviser Armando Siri told newspaper La Stampa. Siri said he hopes to present the proposal to Di Maio “as soon as possible.”

Di Maio and Five Star are skeptical. “The important thing is not to make easy Berlusconi-like promises,” he said Sunday. “We have responsibilities to citizens.”

Five Star’s Laura Castelli, who is deputy finance minister, told reporters in Rome on Monday that even if the cost of the flat tax were 15 billion euros, that would be “unsustainable.” She added: “We must be realistic given today’s economic situation.”

Bumpy Ride

The party’s Barbara Lezzi, minister for southern regions, echoed in an interview with Radio 24 that the idea is “a promise that can’t be kept.”

The coalition faces a bumpy ride this week, with a vote due in the Rome Senate on whether to back immunity from prosecution for Salvini in a case linked to his refusal to let a migrant ship dock in Sicily last summer. The Senate will also vote on a motion of confidence in Transportation Minister Danilo Toninelli over his handling of a disputed Alpine rail link project.

Italy was the only nation in the euro region to slip into a technical recession during the final quarter of last year, when the economy shrank 0.1 percent.

©2019 Bloomberg L.P.