by Eric J. Lyman
ROME, Nov. 12 (Xinhua) -- Italy's 2015 budget will contain a significant reduction in a key kind of regional business tax, a move aimed at increasing industrial production and creating new jobs, but experts say it may have a disproportionately negative impact on the poorer southern parts of the country.
Italy's Ministry of Economy and Finance and Prime Minister Matteo Renzi unveiled the 2015 budget in October, and it survived a European Union review for the most part intact.
On Nov. 7, Minister of Finance Pier Carlo Padoan said the recent changes in labor laws and the way the regional business tax, called the IRAP, are calculated will reduce corporations' tax payments by an average of nearly 37 percent.
The IRAP is a 3.9-percent tax on a company's profits, plus interest-related expenses and labor costs. The new change means that salaries for workers under the revamped unrestricted long-term labor contracts will not be included.
The change should act as an incentive for companies to sign new workers to long-term contracts rather than to a series of temporary contracts as is often the case today.
It is not the first time the IRAP has been revamped. In 2007, then-Prime Minister Romano Prodi passed a bill that offered a rebate for IRAP taxes paid on workers hired on unrestricted contracts.
The rebate was doubled in the poorer regions, where, according to Universita Cattolica economist Massimo Bordignon, the change had the biggest impact: Bordignon's studies showed southern companies hired 2.3 percent more new workers than companies in the more industrialized north.
"The impacts were significant," Bordignon told Xinhua. "You could judge just how large they were by measuring the impacts on companies just across the north-south border from each other."
The seven-year-old change Prodi ushered in will be removed when the new budget takes effect Jan. 1, 2015.
"Before, there was a rebate on the tax for certain kinds of contracts and now the tax isn't paid on the equivalent contracts," Bordignon said.
"That's a net positive for all businesses, but less of a positive in the south, where companies will suffer a blow. When the new law takes effect they will no longer have this specific competitive advantage over northern companies. It will be balanced, while previously there had been a certain advantage for southern companies hiring full-time workers," Bordignon added.
Overall, the change has been applauded by companies and criticized by some trade unions wary of having some labor contracts treated differently by tax authorities.
According to tax expert Luca Bianchi from Commercialista Telematico, the change is a relatively small step in the right direction.
"It is a modest step that will make some difference," Bianchi said in an interview. "But taxation in Italy remains too high, and this change won't make a big difference in that."
Bianchi said Italy's overall tax burden, currently weighing in at more than 45 percent of the country's gross domestic product, one of the highest rates in the world, is too high for Italian companies to compete.
"Until Italy reduces the overall tax burden and cuts down on bureaucracy, Italian companies will continue to have a competitive disadvantage against non-Italian rivals," Bianchi said. "Some small changes in the way the IRAP is calculated won't change that by themselves."
