Italian Government Restricts the Use of Cash

My wretched airport experience last year has a link to what’s going on in Italy.

Basically global governments have used money laundering as an excuse or as a front to compel the public to migrate their transactions into the politically privileged banking system so that these transactions can be monitored and subsequently bankrolled to finance the governments. I think this represents part of the financial repression.

From Bloomberg (hat tip Bob Wenzel) [bold emphasis mine]

Prime Minister Mario Monti, in office just over a month, wants landlords, plumbers, electricians and small businesses to stop conducting large transactions in cash, which critics say helps them evade taxes. The government on Dec. 4 reduced the maximum allowed cash payment to 1,000 euros from 2,500 euros.

“If they force us to use credit cards, prices will go up,” said d’Andrea, noting that many retailers offer discounts to customers who pay in cash and don’t demand a receipt, in effect splitting with them the savings from evading the country’s 21 percent sales tax. She may curtail future purchases if she’s unable to use cash, d’Andrea said.

Italy loses more than 120 billion euros in unpaid taxes every year, according to the Equitalia tax collection agency. The country spends another 10 billion euros annually on security and labor for processing cash transactions, according to banking association ABI.

Debt Crisis

Monti is focusing on curtailing evasion as one way to reduce Italy’s 1.9 trillion-euro debt, which is bigger than Spain, Greece, Ireland and Portugal’s combined. Investor concern that Italy remains at risk of being overwhelmed by the region’s debt crisis pushed the country’s borrowing costs to euro-era records last month.

In Europe, Italy has a large shadow or informal economy (chart from the Economist) which implies that transactions are not being taxed and are usually done on cash basis and outside the banking system, thus the so-called “evasion”.

Yet in reality informal or shadow economies are symptomatic of the markets circumventing burdensome and stifling regulations, tax payments and social welfare contributions as previously discussed.

So essentially debt strapped governments like Italy has launched a war against their informal economy.

Such dynamic can be seen from the succeeding portion of the same article (bold emphasis mine)

The reform pits the government against some Italians who prefer to pay for everything from wedding receptions to home renovations with cash, allowing merchants to underreport or not declare the revenue, and gaining a discount in exchange. Many small companies pay salaries in cash, allowing employees to report less income, the Finance Ministry said last year.

“Businesses make us accomplices, because nobody wants to pay extra on a large transaction,” said Adele Costantini, a professor of medicine in the southern region of Abruzzo, who had to argue to get a receipt from a house painter. “I want them to pay the tax, not unload it on me.”

Italians are the euro region’s least-indebted consumers and among its biggest savers, according to data from the European Union’s statistics office, Eurostat. Their frugality may be at least partly linked to a distrust of paying with anything other than cash. Italian credit-card holders use their cards on average only 26 times per year, or five times less than in the U.K., according to the Bank of Italy.

‘Culture of Cash’

“The culture of cash is strongly ingrained in Italians, even those that don’t evade,” Deputy Finance Minister Vittorio Grilli said at a Dec. 5 press conference in Rome. The government initially wanted to set a 300-euro or 500-euro cash limit but decided against it, Grilli said, reasoning that citizens needed time to adapt to new rules.

These are manifestations of the welfare state-central banking-banking cartel facing continuing tremendous pressures to preserve the current unsustainable system.

Yet impositions like the above which goes against culture will naturally meet stiff resistance. And unintended consequences will likely be the ensuing order—perhaps the informal economy might resort to trading based on foreign cash currencies or local community currencies could emerge (like in some parts of the US) or even trading could be done in metallic coins or that such laws will simply be ignored or not complied with or that corruption will only swell. There are many variations that could arise in response to such repressive law.