Italian Tax Hike Wins Points For Courage, But Not for Style

FINANCE Minister Giovanni Goria publicly apologized to the Italian people last weekend for the chaos and confusion surrounding a series of new taxes to help cut this year's projected deficit of $134 billion.

The unprecedented move was an embarrassing acknowledgement of the inefficiency and lack of preparation in imposing the new taxes, which have provoked anger and frustration among millions of citizens, threats of a tax boycott and possible strikes, and sharp criticism from media commentators and even the Vatican.

"The fiscal pressure on Italian taxpayers not only grows more burdensome on many fronts, but also becomes always more tortuous, chaotic, contradictory," wrote the official Vatican newspaper Osservatore Romano.

Mr. Goria's apology was triggered specifically by the confusion and popular uproar over how Italians are supposed to pay a new tax on passports and drivers' licenses - two of a series of new taxes which, all told, La Stampa newspaper estimated will cost the average Italian family about $900 by the end of this year.

The chaos over the new passport and drivers' licenses taxes came on the heels of similar chaos earlier this month, after the government announced a new real estate tax that must be paid by Sept. 30.

In cities across the country, Italians by the thousands lined up for hours in 100-degree weather outside real estate registry offices to try to find out details about how, when, and how much to pay - only to find out that little information was yet available.

"I'm sorry, but the new tax caught the financial administration by surprise," an embarrassed Giorgio Benvenuto, secretary-general of the Finance Ministry, said on nationwide TV.

These taxes are part of the broad package of belt-tightening economic legislation Prime Minister Giuliano Amato's government began to enact soon after its installation at the end of June.

THE measures - including such economic reforms as privatization of state enterprises, elimination of the 47-year-old wage indexation system, and public spending cuts aimed at saving $27 billion by the end of this year - were hailed by economists and other observers both in Italy and in EC partner countries.

When Moody's sharply lowered its investment rating on Italy earlier this month, it praised as "positive" the steps taken so far by Mr. Amato's government in the economic sphere. But it said that the measures came too late; that Italy had "missed its chance" to clean up its economy when the debt was lower and outside forces more favorable to growth.

But the suddenness of the new taxes, lack of preparation in implementing them, and the size of the new tax burden has bewildered and angered many Italians.

One of the new taxes, for example, is an arbitrary one-time tax of 6,000 lire ($5) for every 1 million lire held in bank accounts on July 9. The banks themselves are to forward this amount directly to the tax administration.

Protests have already begun and more are expected in September when the country returns to normal rhythm following the summer vacation period.

Senator Umberto Bossi, leader of the regionalist Northern League has urged his followers not to pay the new taxes at all. The League, the fourth-largest party in Parliament, wants to separate the north from the rest of the country and opposes the central government in Rome.

Labor unions, too, are beginning to threaten possible protest strikes in the fall.

Italian authorities say they are committed to reforming the economic and financial system to conform with European Community norms - but many observers point out that the bottom line problem is not simply economic.

"The disenchantment of the electorate regarding the efficiency of this system, and the emergency represented by regionalist movements ... render it difficult to foresee a realignment of political forces," Moody's said.

Italy's political system has been under fire for a long time, and politicians on all levels have called for wide-ranging institutional reform.

Elections in April were very fragmented and produced no cohesive opposition force.

Political wrangling delayed forming a new government for nearly three months and composition of Amato's ruling coalition ended up being the same as the government it replaced.