Oxford Economics blasts Italy’s ‘Super Bonus’ tax scheme

Italy’s “Super Bonus” tax scheme introduced by the second Conte government to mitigate the effects of the pandemic by introducing high tax deductions for homeowners sustainably renovating their homes is “probably the worst tax policy measure implemented in the country in the past decade”, the British observatory Oxford Economics said in a recent report.

Aimed at mitigating the economic impact of the COVID-19 pandemic on households and businesses, the scheme allowed homeowners to deduct 110% of the cost of renovating their homes from their taxes, provided the renovations improved the sustainability of buildings.

However, it has also strained Italy’s finances, with the latest data from the National Agency for New Technologies and Energy (ENEA) showing that deductions from the scheme totalled €122 billion by the end of March.

In an interview with Euractiv Italy, Oxford Economics Chief Italian Economist Nicola Nobile highlighted the worrying figures surrounding Italy’s construction loans, which, according to recent reports, have risen to a staggering €219 billion.

The bulk of this sum is attributed to the scheme, indicating unprecedented spending levels in the sector.

Nobile also raised a critical point that is often overlooked outside Italy: while the impact of these credits has been mainly on the deficit, there is a temporal discrepancy regarding their impact on debt.

According to European Commission directives, although transferable, these credits have to be recorded in the deficit of the year the construction work is completed.

However, the impact on debt occurs when consumers use the tax credits, which leads to a delayed effect. As a result, while the deficit already shows a significant increase in 2022, reaching 8%, the impact on debt is expected to be felt over the next three years, with an estimated annual burden of around €40 billion from 2024 to 2026.

Nobile highlighted the expectation that a falling deficit should ideally translate into a tangible reduction in the debt-to-GDP ratio. However, this is not likely to happen due to the lingering effects of the scheme and other construction loans on the public debt.

The current government has also recently thrown shade at the “Super Bonus” scheme, as Economy Minister Giancarlo Giorgetti attributed most of the projected increase in public debt to the tax scheme even though, when it was introduced in 2020, it had backing from all Italian parties.

Commenting on the government’s economic projections, Nobile expressed scepticism towards the overly optimistic debt figures released recently and noted the need to await definitive data but cautioned that the projected public debt for 2024 appears too low.

“The debt data released yesterday seems a little too optimistic to me. We’ll have to look at the final numbers but my guess is that it grows too little in 2024 for their estimates”, he said.

Nobile also said that the unforeseen economic consequences of the construction loans could be partly attributed to policy oversight and noted the challenges of predicting such consequences given the complex design of these measures, compounded by regulatory uncertainties within the EU framework.

While it is true that the “Super Bonus” provided a temporary boost to economic growth, Nobile cautioned against viewing these measures as a long-term solution to Italy’s economic challenges, as they do not contribute to the country’s potential output.

However, Nobile suggests that changes could be made to the scheme to mitigate its negative effects.

For example, the economist proposes to limit the duration and generosity of tax credits to limit their negative impact on public finances, as he described construction loans as a double-edged sword.

“There are aspects that could have contained the negative effects on public accounts. Certainly if they were stopped at the beginning and only do it for a certain period with less generous tax credits already that would have been an improvement”, he said.

As the stimulus fades, the sector is likely to drag on growth in the coming years, ultimately exacerbating fiscal pressures, he added.

(Alessia Peretti | Euractiv.it)

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