Commentary:
“The economy operates through the taxation system. Fiscal maneuvers can determine the economic direction of a country. Taxation is a planning tool. Economic choices should not be made for fiscal reasons alone, but fiscal factors can help in the decision making as they can be used as incentives. A fiscal efficient state is able to distribute the fiscal pressure equally and use taxation to incentivize strategic sectors.”
We talk to CoCo Lo Porto about Fiscal systems and the role of government, private sector and citizens in rebuilding the economy after the pandemic.
1- What is the role of a tax attorney?
I am a tax attorney at Gruppo Intesa San Paolo, one of the most important banking groups in Italy. My role is to provide fiscal advice to the companies who are part of Intesa San Paolo. Far from an administrative role my work is basically legal. I interpret the fiscal rules and understand how to better apply these rules to the various activities of the group. The activities could be corporate, and therefore rules that impact the company’s fiscal requirements, or individual, pertaining to the people who buy the bank’s financial products. When we talk about the group we talk about banking, insurance, wealth management and trust.
2- What is the importance of taxation for a country?
My work is interesting because the fiscal rules are always in development and adapt to the nation’s necessities. Taxation is an instrument of monetary policy used to create resources or incentivize the economy for example by creating rules that produce savings for sectors of national interest. A typical example could be TIR, tasso interno di rendimento (internal rate of return), a kind of financial product that helps in the management of national economic reality or small to medium size companies. To incentivize small to medium companies, the government can decide to allow individuals to invest and obtain fiscal exemptions from the product of this investment. This is a way taxation is used to incentivize areas of interest. At the same time, taxation can be leveraged to respond to state needs as in the case of interest rate increases for example. Taxation is not abstract it is the tool governments use to channel investments and economic operations. Fiscal Rules emanate from the country’s budget requirements and one needs to interpret them and contextualize them by understanding the system in which they exist. Thinking and proposing fiscal rules is a very interesting part of what I do. Tax attorneys and politicians need to interact and collaborate in order to respond to the needs of society. For example, how can we help young people buy new houses? It is very rewarding to see one’s proposal become a new law approved by parliament in the Italian system. It is constructive and gives me a sense of achievement and participation in the Italian system.
3- Could you describe the relation between taxation and economics?
The economy operates through the taxation system. Fiscal maneuvers can determine the economic direction of a country. Taxation is a planning tool. Economic choices should not be made for fiscal reasons alone, but fiscal factors can help in the decision making as they can be used as incentives. A fiscal efficient state is able to distribute the fiscal pressure equally and use taxation to incentivize strategic sectors. In a country like Italy, with an extremely elevated public debt, this balance is challenging. In this country, fiscal incentives are almost impossible considering the covid pandemia demanded a heavy public spend increase and elevated the Italian public debt to more than 150%. The hope is that the European recovery fund will help incentivize the economy and create a positive cycle of investment without the need to increase taxes. Another important characteristic of taxation is that it should help distribute revenue to create more equality among the social classes. That is why government establishes rates of taxation according to income. In Italy we need to find ways of taxing with more equality, there are differences between taxation to employees, self employed and pensioners that need to be addressed.
4- How will the increase in public spend caused by the pandemia impact society?
There will be an impact of greater state investment on welfare and social services required by the Pandemia. The new Italian government led by Mario Draghi was able to find new resources and European funds but new fiscal policies might require private companies to invest more on welfare and services to its employees. Italy could for example incentivize investment on private pensions and health funds but that would also require the government to look at categories who are currently not covered by the system as for example the self employed.
5- Will the European recovery Fund affect the normal citizens?
Yes. The recovery fund should promote a cycle of investment which will in turn produce more income to tax. The increase in taxation will provide the government with funds which reduce the public debit and allow the state to invest more on social welfare and services like health and education which improve the life of citizens.
6- Why do we say the Italian fiscal pressure on citizens and companies is of 60%?
This number considers not only pure fiscal pressure but the joint fiscal and contributive pressure. The fiscal rate on the highest income is around 43% to which you add the regional contributions at 45% and the pension contributions that are extremely onerous. A pension reform is urgently required because it is based on the payment of privileges that new generations are no longer entitled to. Old pensions were based on last salary whereas new pensions are based on contributions to the system. This system is unbalanced and needs to be reviewed. The pressure is not only fiscal but takes into account contributions that make the cost of labour incredibly high in Italy. In order to reduce this cost, the Italian pension system needs to be reformed and fiscal changes need to be adapted to the various work categories. But that is not the whole story, Italy can also be considered a fiscal paradise for different kids of taxation. Hereditary and succession tax for example, are the lowest in Europe. In Italy this kind of taxation is limited to 4% to 8% whereas countries like France normally require 40%. Going forward, we need to create a more balanced system that accounts for differences between the many kinds of subjects and income rates.
