Economic reality flies in the face of the “pro-growth” policies prescribed by politicians and which has been endorsed by mainstream experts.
Italians join Greeks in dodging tax increases, which demonstrates their refusal to feed big government through the strangulation of the private sector.
From Bloomberg,
Italian Prime Minister Mario Monti is facing signs that tax increases are beginning to backfire as his new levy on real estate goes into effect.
Value-added tax receipts have declined since Monti’s predecessor, Silvio Berlusconi, raised the rate by 1 percentage point in September as the economy was slipping into recession,government data released June 5 showed. The amount collected fell in the 12 months ended April 30 to the lowest since 2006.
Finding the right deficit-reduction mix as Monti fights to meet budget targets is critical for Italy to avoid becoming the biggest victim yet of Europe’s financial crisis. A slump that is driving up welfare spending is adding urgency to Monti’s effort to make the economy more competitive amid a growing backlash across Europe against austerity.
“This government has raised taxes too much,” said Alberto Alesina, a professor of political economy at Harvard University. “It would be much, much better to lower spending.”…
The decline in VAT revenue figures may bolster the government’s efforts to postpone a further increase in the rate after October by 2 percentage points to 23 percent. That would put Italy on par with Greece.
The emperor has no clothes. Pretentious knowledge has been exposed via the law of unintended consequences
Again from the same Bloomberg article, (bold emphasis added)
Monti planned to tap more than 4 billion euros of projected savings from a government spending review to put off the VAT increase, which his deputies acknowledge may deepen the recession.
“The economy shows signs of strong deterioration,” Finance Undersecretary Gianfranco Polillo told the Senate in Rome on June 6. “In light of the fall in domestic demand, betting on a further VAT increase would be incomprehensible and even wrong.”…
Under Monti, Italy’s tax burden, the ratio of tax revenue to economic output, will rise to 45.1 percent this year from 42.5 percent in 2011, and won’t start falling until 2015.
Monti, a former university president and Goldman Sachs Group Inc. (GS) adviser, was brought to power in November to rein in bond yields and bring down debt. His 20 billion-euro austerity package raised retirement ages and was followed by measures to ease firing rules and promote competition. Increased rates on gasoline were enacted in December and on luxury goods earlier this year, while the first property tax payments are due next week.
“I don’t want to deny that we could have done more and better,” Monti said in a June 7 speech. Still, his reforms have produced results, he said.
Dodging Tax
The government had 99.8 billion euros in VAT receipts in the 12 months ended April 30 tied to internal trade, or transactions among domestic counterparties. That compares with 100 billion euro in the 12 months ended March 31 and 101.3 billion euros in the period ended April 30, 2011.
“VAT revenue does depend on growth in domestic consumption,” said Ian Roxan, director of the Tax Programme at London School of Economics and Political Science. “It is also not immune to evasion. It is certainly possible that in a time of austerity people become less willing to pay VAT.”
Italy loses more than 120 billion euros in unpaid taxes every year, according to the Equitalia tax-collection agency. The country retrieved 12.7 billion euros from the fight against evasion in 2011, up 15.5 percent from 2010.
This also exposes the propaganda that the public has been “anti-austerity” which is nothing more than media's manipulation of people’s minds. Because if Italians have indeed been anti-austerity, they would have rushed to the tax collection agencies to pay their share. Duh. Or maybe Italians came to realize they are NO free lunches.
The harsh lesson from reality is “If you tax something, you get less of it.”
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