Tax rebates, the black hole: unknown costs for 118 measures

In the endless labyrinth of the hundreds of rebates that the IRS grants in various forms to Italians to protect this or that expense, politicians are looking for the magic wand that can turn any economic policy objective into reality. The hunt has intensified in recent months, not least in view of a 2025 manoeuvre that does not look like a walk in the park. The government and the majority have promised to use the reorganisation of tax expenditures to finance a piece of the tax reform that should lower taxes for the generality of taxpayers; the opposition, on the other hand, is aiming to find from there the tens of billions that would be needed to bring healthcare funding back from 6.4% of GDP to 7.5%, as the PDD is asking, or even to 8% as the 5 Star Movement proposes.

But like any self-respecting magic instrument, tax rebates are also surrounded by an aura of mystery. Which, incidentally, does not sit too well with the public budget management requirements of a developed country. This was confirmed a few days ago by Economy Undersecretary Federico Freni in response to questions from Maria Cecilia Guerra and Chiara Braga, PD deputies and one of the promoters of the Dem bill on public financing of healthcare, in the Budget Committee of the Chamber of Deputies.

Guerra, who by the way with the Conte-2 and Draghi governments had the same role today held by Freni, basically asked his successor to quantify, with a degree of detail that is not too extreme, the costs connected with the various types of tax rebates, to understand how promising the search for coverage by that route might be. And Freni, referring to the tables of the last annual report on the subject attached to the Nadef, explained that the tax expenditures are 625, net of the items to be protected according to the PD proposal (home, health, education, social policies and social security) they are reduced to 412; but within them there are 118 items 'unquantifiable, due to lack of data or to the characteristics of the measure itself'. Another 50, on the other hand, have expired, and therefore have exhausted or are exhausting their effects.

In short, of the 20 per cent of active tax expenditures, we have no idea how much they cost. The 'unquantifiable' label is taken from the Programme Report that accounting rules require to be annexed every autumn to the Update Note to the DEF in order to 'indicate the measures aimed at reducing, eliminating or reforming tax expenditures that are wholly or partially unjustified or outdated in light of changing social or economic needs, or that overlap with spending programmes with the same purposes, which the government intends to implement with the public finance manoeuvre', as explained in Article 10-bis, paragraph 5-bis of Law 196 of 2009. 'Reforming tax expenditures', or even financing public finance manoeuvres with this leverage, becomes complicated, however, if the expenditure remains mysterious for 118 items, scattered among VAT, registration tax and Irpef, which take up the largest share.

But it gets worse. Because, as Freni adds, the Annual Report born with the ambitious objectives defined by the law "intentionally does not provide a total in terms of revenue in relation to the individual missions", i.e. to the various objectives for which all public expenditure is aimed. And this silence is 'intentional', and based on reasons that are not hard to understand. Because tax rebates influence the behaviour and spending choices of taxpayers, and they often act in related areas, so that the cut or outright abolition of a rebate could shift expenditure to similar areas, thus increasing spending on 'neighbouring' rebates. This pinwheel of externalities is quite complicated to assess, and thus to measure when looking for cover for certain new expenditures.