Tax Analysts Blog

Berlusconi & The Lure of Tax Refunds

Posted on Feb 22, 2013

It seems that Italy's Silvio Berlusconi is perpetually under criminal investigation for assorted malfeasence. Over the years, the litany of accusations against him has included tax evasion, bribery, perjury, obstruction of justice, jury tampering, and paying for sex with an under-age female known as "Ruby the Heartbreaker." (You can't make this stuff up.)

Considered Italy's richest man, Berlusconi has enjoyed three terms as prime minister: 1994-1995, 2001-2006, and most recently 2008-2011. His net worth is estimated at $6 billion. Through his conglomerate, MediaSet, he controls three of the country's seven national television networks, plus leading radio stations and newspapers.

He's an influential guy, and not short on ambition. In fact, at the tender age of 76 he seeks another stint as PM in the general elections set for this coming Sunday. Polls show him trailing center-left opponent Pier Luigi Bersani by 5 percentage points.

How does he plan to win over the electorate in the final days before the ballots are cast? Two words: tax refunds.

In a mass-mailing sent out earlier this week, his political party (the 'Freedom People' movement) sent voters a personalized letter describing his bold new plan to abolish an unpopular property tax, the Imposta Municipale Unica (IMU), and directly refund previously paid IMU revenues to Italian taxpayers. The refunds would run into the billions of euros. The letters claim that the tax refund will be the first order of business taken up by Berlusconi's new cabinet on their first day in office. What's not to like about the government throwing free money at you?

Opponents condemn the move an attempt at "vote buying." Deficit hawks -- and they're not many of them left in Italy these days -- warn the country should use tax revenues to pay off its debts rather than give money back to taxpayers. After all, the European Central Bank continues to worry that Italy might be the next EU member state to require a massive bailout if their finances don't improve.

Say what you will about pandering, voters in most countries do seem to enjoy receiving refund checks. The United States went through a similar refund experiment about a decade ago. That was back in the day when nobody lost sleep about the deficit and Federal Reserve Board Chairman Alan Greenspan spent his days worrying about what the federal government would do with all the superfluous tax revenue we had sitting around. My, how times change.

Will the tax refund help Berlusconi close the gap on Bersani? That's in doubt because there's another brash candidate for PM who is suddenly gaining momentum and surging in the polls: comedian turned-social activist Beppe Grillo. The Italian Republic governed by comedian? Who says politics isn't great theater.

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