Italians Dodge Property Tax in Test for Monti’s Austerity

Italians Dodge Property Tax in Test for Monti’s Austerity
Italy expects to raise about 21 billion euros ($26.3 billion) from the new property tax known as IMU. Photographer: Alessia Pierdomenico/Bloomberg

Luciano Di Pardo, a lawyer in Milan, is dodging Italian Prime Minister Mario Monti’s new real estate tax.

“I didn’t pay it,” Di Pardo, 75, said of the levy that was the centerpiece of Monti’s austerity budget. “I get that we are on the edge of failure and disaster, but you can’t keep taking from ordinary people.”

The new levy, which should have cost Di Pardo about 500 euros ($630) when the first payment was due on June 18, may mark the limit of how much Monti can squeeze out of taxpayers. The belt-tightening is also sinking the prospects of Monti’s supporters in parliament and deepening Italy’s fourth recession since 2001.

Italy’s main political parties, which agreed to suspend their rivalries and back the unelected Monti when he was appointed in November, have seen their support plummet to the lowest in about two decades. Soured voters like Di Pardo are turning to Beppe Grillo, the comic-turned-politician, who called the euro an “ever-tightening noose” and urged policy makers to consider default.

The austerity has boosted Monti’s prestige as a deficit fighter outside of Italy and conferred credibility on his call for bolder European measures to spur growth. He is hosting a summit tomorrow in Rome where he’ll seek to overcome resistance from German Chancellor Angela Merkel for a collectively financed stimulus program.

Revenue Measures

The more than 10 billion euros expected to be raised this year from the tax known as IMU accounted for more than a third of the revenue measures in the budget Monti pushed through in December to protect the third-biggest euro economy from the financial crisis that claimed Spain this month. While he has won praise from European counterparts, investors are still concerned Italy may need outside help. Benchmark borrowing costs rose to the highest in almost five months last week with the country’s 10-year bond now yielding 5.7 percent.

The IMU reinstates tax on first homes, a charge that was terminated four years ago when former Prime Minister Silvio Berlusconi made Italy one of the only large euro-region countries without such a levy. It also raises the fee on commercial holdings and vacation properties, and scraps deductions for landlords who offer rents below market rates.

‘Profoundly Unfair’

“Taxing primary residences is profoundly unfair,” said Rossella Ronconi, a 54-year-old who works for a tourism promoter and owns an apartment in Rome. “It should be an inalienable right.”

The IMU is deepening resentments because it relies on an out-of-date public register that understates the value of the oldest and priciest homes in city centers, according to ASPPI, an association of property owners. Those with moderate incomes are also hurt by the elimination of incentives for rent-controlled leases, said Luca Dondi, head of real estate at Bologna-based economic-research firm Nomisma SpA.

“The methodology, let’s put it this way, is not fair,” said ASPPI President Alfredo Zagatti. “It favors people in wealthier areas.”

ASPPI organized petition signing events on June 16 from Messina in Sicily to Lecco, situated at the foot of the Alps north of Milan. Daniela Santanche, a deputy of Berlusconi’s previous government, urged Italians in a full page newspaper advertisement on June 2 not to pay the IMU’s first instalment and pushed the government to repeal the tax.

No Second Term

Monti was president of Bocconi University in Milan seven months ago when he was asked by President Giorgio Napolitano to form a government following Berlusconi’s resignation. Monti, a former Goldman Sachs Group Inc. adviser and European Union competition commissioner, has said he won’t try to seek a second term when elections are held next year.

His reliance on tax increases to tame Italy’s 2 trillion- euro debt load may be putting the parties supporting him in a bind as they brace for an election campaign.

Backing for the Democratic Party and center-right People of Liberty Party dropped this month to the lowest since Berlusconi’s first electoral victory in 1994, according to Maurizio Pessato, vice president of pollster SWG Institute. The governing coalition, which scored more than 77 percent in polls at inception, is down to about 49 percent.

Grillo’s Rise

With both main parties backing the government, disaffected voters are turning to voices that were previously marginal. Support for Grillo’s 5 Star Movement surged to 21 percent from about 11 percent last month, according to a poll released June 15 by Trieste, Italy-based SWG.

Property taxes accounted for about 4.4 percent of Italy’s receipts in 2010, down from 5.2 percent in 2009. In France, the contribution was 7.9 percent in 2009 and 8.1 percent in 2010. Total Italian tax receipts were about 42.3 percent of gross domestic product in 2010, greater than the 38.9 percent weighted average of the 17 countries that share the euro, according to statistics from the European Commission. That tax bite is due to top 45 percent this year.

Under IMU, the government set rates of 0.4 percent of registered value for primary residences and 0.76 percent for second homes and certain classes of commercial real estate. Municipalities may add as much as 20 basis points to the primary home rate and 30 basis points for second homes to boost their local budgets. A basis point is one-hundredth of a percent.

Deepening Recession

“It’s not a huge amount,” said Dario Castiglia, chief executive officer of real estate broker RE/MAX Italia, which has about 200 agencies in Italy. “It’s just that Italians were used to not having any taxes for three years, and also it’s hitting home right when we’re in the middle of perhaps one of the worst recessions in decades.”

Home sales fell the most in eight years in the first quarter. Italy’s economic growth has lagged the euro-area average for more than a decade and will contract 1.4 percent this year, according to a forecast by the European Commission.

Di Pardo, the Milan lawyer, faces a second IMU instalment of at least 500 euros on his Milan home later this year and said he may eventually pay his full dues, with the required late fees. Still, he has a message for Monti.

“I’m not convinced I’ll pay,” Di Pardo said. “I want to do what I can against this unfair tax.”

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