IT WAS a typical own goal. Following a strike threat, the exemption of Italy’s millionaire soccer stars from a proposed wealth tax by the boss of AC Milan, aka Italian prime minister Silvio Berlusconi, was just a prelude to Monday’s U-turn on his austerity budget. All of which has left the markets “confused” and the opposition and trade unions enraged.
Mr Berlusconi’s scrapping of both the plans for a bonus tax on Italians earning more than €90,000 a year and of controversial cutbacks to local authorities axed some net €4.5 billion in savings from his austerity budget. Yesterday the prime minister added again to confusion by letting it be known that he might also reverse pension cutbacks which were set to force many professionals to extend their working lives.
The budget had been passed hastily last month to try to stem a market panic which had threatened to drag Italy into a Greek-style crisis. And, not surprisingly, there was little enthusiasm from investors looking for evidence of fiscal responsibility when Italy on Monday went to the bond markets looking to sell some €8 billion government debt. It is now trading at some 300 basis points above German debt, despite ECB support of some €43 billion since the latter renewed its bond buying.
Mr Berlusconi’s hostility to the taxation of wealth, although very much in tune with the mood music from America’s Republicans, is in marked contrast to the recent flurry of appeals from members of the international super-rich club that they should be more heavily taxed in the interests of social justice and harmony.
Starting across the Atlantic last week, legendary investor Warren Buffett was followed in Europe by multimillionaire chairman of Ferrari, Luca di Montezemolo, and then 16 of France’s wealthiest, including the chief executive of energy giant Total and L’Oréal heiress Liliane Bettencourt. Their stance was endorsed by a group of about 50 wealthy Germans who have been campaigning for a higher top tax rate since 2009. French president Nicolas Sarkozy also announced a 3 per cent increase of the tax on the wealthiest individuals expected to generate about €200 million a year. (Ireland’s super-rich were notably silent).
Yesterday the European Union also added its voice to calls on Mr Berlusconi to include more reforms to the government plan, aimed at balancing the budget by 2013, to help stimulate the country’s sluggish growth. The prime minister has some work yet to do to prove he is serious about getting the economy under control.