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Italy must balance its budget to gain respect from the European Union
SEPTEMBER 23, 2007 – Italian Prime Minister Romano Prodi is in a bit of a pickle. His eclectic government, which includes everyone from staunch communists to reform-minded centrists, bickers constantly and is leading to record lows in the administration's popularity. That's not even the worst of it. By now, everyone knows that Prodi famously increased taxes when he took over in 2006, which outraged many Italians. After promising to cut taxes in 2007, he and his coalition are back peddling about whether it will be possible.
Maybe in the United States the only thing that is certain is death and taxes. But in Italy, death stands alone. Since the introduction of the euro, the cost of living has gone up, but earnings not so much. Many of the people feel like the government does not do enough for them, and they do not earn enough to pay taxes, especially high taxes.
In 2006, the tax burden in Italy rose to 42.3 percent from 40.6 percent the year before, according to the Wall Street Journal. The newspaper compares those numbers to the average for European Union countries, which is 41 percent, to show that Italy has one of the highest tax rates in Europe. Many Italians who didn't think they should have to pay taxes in the first place were outraged by this hike. And they were even more flabbergasted at the thought that Prodi promised to hunt down those who evaded taxes, a more common practice in Italy than in other parts of the world.
Still, Prodi's decision helped Italy get its budget deficit below 3 percent of the gross domestic product (GDP) in 2007, after four years of breaking EU budget rules, according to WSJ. That gets at the heart of why Prodi is having trouble making tax cuts.
For some time now, the European Union has been coming down hard on Italy for its inability to get its finances in order. EU countries are bound to an agreement to balance their budgets by 2010. But the Italian government has set a target of 2011. Despite the tax revenues, the Journal recently reported that Italy's public debt has grown 106 percent since Prodi and his people agreed to above-inflation pay increases for government employees, which account for 3 million people and half the country's output.
The people also pressured Prodi to cut Italy's retirement age, which will cost the country 10 billion euro over a decade, according to the Journal. Despite all this, according to the International Herald Tribune, Prodi has no plans on increasing taxes any more when he presents the budget at the end of September. He claims he'll still be helping low-income families with this new plan, which will contain 10 billion euro-worth of deficit-cutting measures.
I love Italy and its laid-back life. I applaud a people who work to live and not the other way around. But health care, infrastructure, and even culture cost the state money – and you can't just get things for free. There has to be some sort of compromise between people and government about what's fair. You can't just go on forever in a country where no one contributes taxes.
On the other hand, Prodi might have wanted to hold back on increasing the pay of government workers and cutting the age of retirement when facing such financial troubles. That extra cash might have been able to cut taxes or at least bring the country closer to such a goal. And Italians have to learn they can not have their cake and eat it, too. You can't get perks at government jobs and quit working earlier in life and get socialized medicine and not put anything into the pot.
Both the government and the people will have to work together to make concessions and sacrifices to create a stronger economy – and nation – in the future. It's the only way Italy can hope to become a major player in the EU and the world.
For more information on all things Italian, visit www.francescadimeglio.com.
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