Tax rates are having the same effect on the Italian economy as gravity has on the Leaning Tower of Pisa.
Italy’s sky-high business and payroll taxes are stifling economic growth and causing record high unemployment rates, The Wall Street Journal reports.
This is one reason Italy’s output has grown the least over the last decade of any of the 34 countries in the Organization for Economic Development and Cooperation (OECD).
Much of the European country’s burdensome taxes fund Italy’s state pension system. Altogether, the taxes for retirees’ pension plans make up around 13 percent of the GDP. This is a third higher than one of Europe’s most economically stable countries, Germany, and twice the U.S.
At the end of the day Italians are taking home very little, coughing up 33 percent of their salaries to meet the mandatory contribution requirements.
The heavy business taxes and lack of consumer demand for products and services have also forced many companies to halt hiring or lay off employees.
This has, in part, led to the nation’s highest unemployment rates since the 1970s. Youth have been hit particularly hard, with an unemployment rate of a record 40.4 percent.
Italian Prime Minister Enricio Letto has called the country’s economic situation a “true nightmare” and unveiled his draft 2014 budget that makes small steps to ease the heavy taxes on businesses and employees.
Included in the preliminary budget was $4 billion in cuts to business and payroll taxes, which would give workers an additional $13.50 a month in take-home cash.
Prime Minister Letto has also indicated that he expects to trim some $13.5 billion from Italy’s $1 trillion in annual public spending by 2017, but the European Commission is skeptical that this will be enough to restore the health of the country’s economy.
Paolo Manasse, an economist at the University of Bologna, told the WSJ that Italy would need to trim another $40.5 billion in employment taxes to bring it in line with average employment taxes among other OECD members.
Many Italians, especially the youth, have decided to leave for countries that offer more economic opportunities.
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