Taxes from the wealthy won't solve all Italy's problems


The idea isn't new—Spain this year announced it was temporarily reintroducing a wealth tax, and France has long had one. But it is attractive for Italy, where total household net wealth was last estimated at €8.6 trillion, or 5.4 times its annual gross domestic product, according to Bank of Italy data. And it will be one option for the new government, expected to be led by Mario Monti.

Getting the right tax base would be the first step. The Italian data, which only run to 2009, show Italian households held physical assets of €5.9 trillion. Financial assets, including bank deposits, securities and pension funds, totaled €3.6trn. Liabilities of €860m, mostly mortgages and other loans, offset those assets.

Among physical assets, the government could tax only housing and land worth €5.1 trillion, excluding items like household valuables, JP Morgan suggests. The tax base for financial assets could meanwhile be reduced to about €1.6bn if, say, the tax didn't apply to items like bank savings or Italian sovereign-debt holdings.

That would leave the crucial decision of how much of the population to tax and at what rate. If only the wealthiest 10% were taxed, about 45% of household wealth would be liable, based on the Italian data. Based on these assumptions, the net household wealth liable to tax would be about €2.7 trillion, according to Heard on the Street estimates. Wealth-tax rates, meanwhile, tend to be quite low. Spain's ranges between 0.2% to 2.5%, while France's is between 0.5% and 1.8%. So, were Italy to decide on a 1% rate, for example, the wealth tax could raise about €27bn.

Sure, that is far more than the €1bn Spain expects to reap annually from its tax. But Italy has €1.9 trillion of outstanding sovereign debt, and annual debt-servicing payments of about €77bn this year.

Practical issues would make the tax hard to levy, too. Tax authorities would have to find some way to verify property valuations. Italy's tax-evasion rate, estimated at 17% of expected taxes by its national statistics office, could also reduce wealth-tax revenues.

Setting the wealth-tax rate much higher would raise more money. Though that would risk the wealthy getting more aggressive at moving money offshore or sheltering it in other ways.

Fewer exemptions on assets to be taxed could be given. Alternatively, more of the population could be drawn into paying the tax, although that would make it far more expensive to enforce. And it could see more owners of illiquid assets without the cash to pay higher taxes being drawn into the net, undermining support for the measure.

Still, by taxing the richest 50% of the population, thereby doubling the proportion of household wealth covered by the tax, and raising the wealth tax rate to 2%, the government could raise more than €100bn.

Many outside Europe look at Italy's wealth and think its debt problem is a question of willingness, rather than ability to pay. But setting a wealth tax that really changes the equation for Italy will be no easy task.

--Write to Andrew Peaple at

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