Many European countries and many more outside Europe have the problem of public debt; it means that during the past, governments spent more than they earned mainly through tax collection.
Italy is one of the most debt burden countries in Europe: its public debt reaches the astonishing level of 120% of GDP, which is about 1900bn euros. For this reason during the worldwide crisis, Italy has been under attack of financial markets, as the interest soared up to 7,5%.
To decrease the debt, one of the most effective solutions is a wealth tax. For sure it is one of the most scaring for tax payers.
Giulio Tremonti, Italian Minister for Economy and Finance, very often tried to persuade markets that Italian financial position is wealthy because of the high saving of Italian households, which means implying a wealth tax
Banca d’Italia (Italian central bank) published a research saying that the level of the household saving is about 8600bn euros, confirming Tremonti’s words. To split the data, 2600bn euros are invested in financial assets, and the remaining 6000bn euros are invested in non-finance assets of which 86% is housing.
Across Europe wealth tax is spread: fox example Spain's ranges between 0.2% to 2.5%, while France's is between 0.5% and 1.8%.
Italy has 306bn euros to refinance next year; on the current level of 6,5% it is almost 1% of GDP just in interests
Wall Street Journal made estimation of the possible revenue in two scenarios:
the wealthiest 10% taxed, (about 45% of household) at 1% wealth tax
the wealthiest 50% taxed, (about 90% of household) at 2% wealth tax
In the first scenario, the net wealth liable to taxation would be 2,7tr euros, with the government raising about 27bn.
In the second scenario, the net wealth liable to taxation would be 5tr euros with the government raising about 100bn.
This move will surely have bad effect on the economy, with families spending less, trying to recover the loss.
If the government instead of withdrawing taxpayers’ money to cover the debt would borrow the same amount of money to buy its debt, the effect on the economy will be far less worse.
In this way, the government will borrow at a fixed interest, without being at mercy of the markets. European Central Bank has the duty to keep inflation at 2%, so if the rate is 2%, the money given back will have the same purchase power when they were taken.
Since the pull out is only temporary and interests are paid, it is possible to push even further this strategy, increasing the tax to 5%
This will give a saving of the current 7% less 2% of interest payments; which is, in the second scenario, 12,5bn euros each year.
This option is far better than a recovery repressing simple wealth tax because in this way Italy is sure the interests of its debt are kept within its borders and somehow reallocated to citizens, which also means more taxes coming in.