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Italy's new coalition government sets out its policy priorities

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Gian Luca Nieddu and Barbara Scampuddu of Hager & Partners summarise the new coalition government’s policy priorities as regards the economy and tax.

On September 9 2019, Italy’s new government passed a confidence vote in parliament, and subsequently on September 5 2019, Italy's new cabinet swore before the president of the republic, sealing the alliance between the Five Star Movement (M5S) and the Democratic Party (PD).

The new coalition agreed on a 29-point programme to rule Italy for the rest of the term of the legislature (approximately three-and-a-half years). In terms of the economy and tax, general drivers seem to point to:

  • A commitment to use the forthcoming budget to stimulate economic growth, securing at all costs the stability of public finances;

  • Blocking the increase in the VAT rate, which is set to kick in automatically on January 1 2020 if the government fails to reach its debt-reduction target. Nevertheless, preventing the activation of VAT increases would probably entail making substantial spending cuts, alternative tax increases or a substantial revision of tax expenditure to meet fiscal targets;

  • Drawing up a tax reform, including the simplification of the regulation, the reshaping of the rates along with a revision of the deductible costs, and a more effective cooperation between taxpayers and the tax administration;

  • A reform of the civil, criminal and tax justice systems in order to make them more efficient, including through a drastic reduction of the duration of trials; and

  • The introduction of a 'web tax' for multinational enterprises engaged in the digital industry in order to target those players which move profits to countries other than those in which they sell their products.

In forthcoming months more detail will be disclosed on the contents of the proposed provisions and the impact they may have both on the domestic economy and on international businesses, and which represent vital changes for many small and medium-sized enterprises.

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