Italy - Politics, government, and taxation

Italy has been a democracy since the end of World War II, and despite its international reputation for political instability, the country has enjoyed largely consistent policies from successive governments. The country became a republic following the abdication of King Victor Emmanuel III in 1946 and the creation of a constitution in 1948. The country's president is elected by an electoral college whose members represent the popular vote. The president in turn selects a prime minister from the ruling coalition in the parliament. In elections held in 1999 Carlo Azeglio Ciampi was elected president. Following legislative elections in 2001, Silvio Berlusconi was selected as prime minister.

Italy has a bicameral legislature consisting of a 315-member Senate and a 630-member Chamber of Deputies. Both houses are directly elected by popular vote, and members serve 5-year terms. The judicial branch is headed by a Constitutional Court whose members are appointed in equal number by the president, the parliament, and the administrative Supreme Courts.

The major parties that have dominated politics since 1946 are: the Christian Democrats (DC), the Communist Party (PCI), and the Socialist Party (PSI). The Christian Democrats have been the dominant force in Italian politics, continuously leading a coalition government from 1946 until the early 1990s. Until 1963, when the Socialist Party entered parliament, the Christian Democrats' coalition partners represented 3 smaller parties, the Republican Party (PRI), the Social Democratic Party (PSDI), and the Liberal Party (PLI). The main objective of all parties was the exclusion of the communists from government, and the resulting continuity of parliamentary representation ensured that there were no major swings of policy. This government coalition presided over a long period of economic growth and a satisfied electorate opposed to any radical change. The harsh recessions of the late 1970s, mid-1980s, and early 1990s, however, undermined the popularity of the DC-PSI axis, but it was not until 1992 that the political system fell apart. In that year, a major anti-corruption investigation that implicated politicians and heads of industry in a cash-for-favors exchange shook the political and economic establishment of the country.

The corruption scandals, combined with the collapse of the USSR that ended the ideological war over communism in Italy, radically altered the political system. In addition, a new economic recession for which mismanagement of the national economy was largely to blame hastened the exit of an already discredited political class. Thus, traditional parties disappeared, and new parties emerged between 1991 and 1994. Electoral laws were reformed, and in a radical move, proportional representation was abolished. It was replaced with the first-pastthe-post system, where the country is divided into constituencies, and the constituency seat goes to the winning candidate. (The congressional elections in the United States follow a comparable system.) The changes stood to give the electorate clear choices and were welcomed by many who believed that, with fewer parties in government, politicians would deal with concrete issues in non-ideological terms. Far from decreasing, however, the number of political parties has increased, and coalition government still prevails. Nevertheless, to a certain extent, expectations have been met, and the Italian electorate does face a clear choice at election time between center-right and center-left coalitions. Both sides have had periods in office since 1994.

The main parties within the center-right coalition are Forza Italia, National Alliance (AN), the Northern League (NL), and the Center Christian Democrats (CCD). The largest party is Forza Italia, led by media tycoon Silvio Berlusconi, who is also the leader of the coalition. This party believes strongly in further reducing the role of the state in the economic sphere and aims to accelerate the pace of privatization. Clearly conservative, Forza Italia also plans to cut the costs of the welfare state and introduce free-market competition in health and education, as well as cutting taxes. The Northern League shares these economic policies but also advocates increased political and fiscal autonomy for all regions by devolving responsibility to the regions for providing several fundamental services, including the provision of education, health care, transport, and law and order. Under this proposal, the regions would be empowered to raise taxes, keeping most of the revenue to spend as they decide, without central government interference. The NL represents, in electoral terms, the majority of northern voters, and its appeals for federal reforms are to be taken seriously. The National Alliance is the most right-wing party of the coalition and is mostly preoccupied with limiting foreign immigration, preserving the integrity of the national territory, and safeguarding the international credibility of Italy. It shares the broad economic approach of its partners but does not support the federal reforms advocated by the NL. The Center Christian Democrats offer a more moderate voice regarding immigration and social policies but argue for increased economic liberalization.

The center-right coalition was in power in 1994 for only 7 months and was unable to carry out their promised reforms because the Northern League withdrew from the alliance. The center-left coalition won the 1996 election. The main parties of the center-left coalition are the Democrats of the Left (DS), the People's Party (PPI), the Greens, the Democrats, and, after years in the wilderness, the Communist Party (PCI). The DS, the largest partner in the coalition, is a social-democratic party. The broad outline of its economic policy, shared by all its partners, favors liberalization, privatization, lower taxes, and job creation by means of financial incentives to employers. The PPI is one of the heirs of the old Christian Democrats (DC) and is the most socialist party of the coalition, supporting recognition of gay rights, subsidized housing for refugees, and abortion. In the economic sphere, the PPI is slightly to the left of the dominant DS and believes that the state should still play a strong role in managing the economy. One distinctive policy of the PPI is the advocacy of state aid to private schools run by the Catholic Church. The Greens subscribe to most of the economic policies advocated by the DS but are mainly concerned with the environmental aspects of those policies. In common with the Greens in the rest of Europe, they are particularly committed to limiting the use of motor cars in favor of a more environmentally friendly public transport system. Many of the economic policies of the right and left parties overlap; the difference is marked in matters of social policy, the environment, and federalism. The center-left coalition is not as keen as its opponents to introduce free-market competition in the provision of health and education, preferring a smaller, more efficient welfare state and, in principle, is not hostile to foreign immigration. Finally, the center-left supports administrative and political decentralization, but is against extensive federal reforms that would widen the already large gap between North and South.

The center-left coalition held power from 1996 to 2001, a period characterized by an economic slump and by Italian support for NATO actions in Kosovo. With the economy slumping in the runup to the 2001 legislative elections, the center-right parties, led by Silvio Berlusconi's right-wing Forza Italia, returned to power in a coalition that included some of the most right-wing parties in Europe. Since his return to power, Berlusconi has been an outspoken proponent of free trade and pro-business policies. He has promised to reduce unemployment, cut taxes, and reform education and the still-bloated state bureaucracy.

An aspect of Italian politics that should not be ignored is the growing disillusionment of the electorate. Many citizens feel that their participation in the political process makes no difference to government, and there has been a sharp decrease in party membership. Voter turnout has steadily decreased since the mid-1980s, and in the 1996 elections, 23.1 percent of voters either stayed away from the polls or spoiled their ballot papers. This is a worrying sign of disaffection, and many political parties are concerned that if this trend continues it will undermine the legitimacy of future governments.

The former leader of the Socialist Party, Giuliano Amato, launched a far-reaching privatization program in 1992, which was continued by both coalition governments. Aside from the sale of state assets, both coalitions agreed that the pension system should be reformed and its apparent generosity curtailed. The reform of the pension system was carried out in full by the center-left coalition in power from 1996 to 2001, which was able to convince the trade unions to accept a deal. Both coalitions are also in favor of increased international free trade, even though they advocate some sort of protectionist measures for so-called "cultural products" such as movies and TV programs, which promote Italian language and culture. Finally, budget cuts across the board (particularly as regards health and defense) have been welcomed by both coalitions. The general convergence of ideas on economic management should not, however, obscure the differences that still exist between left and right. These differences are highly visible when it comes to crucial social issues such as immigration, gay rights, and the environment.

Problems of corruption, including the infiltration of political institutions by organized crime, have long been a feature of Italian life. The present political system was born out of a popular reaction against the spread of corruption and crime, but the problem, though marginally worse in the 1970s and 1980s than it is as of 2001, refuses to go away. The new political structures seem only to have provided a pause in the usual pattern of "doing politics" and "doing business" in Italy.

Taxation in Italy is quite a complicated affair because there are numerous taxes that each citizen has to pay. Moreover taxation is high, representing 43.3 percent of the GDP. However, the number and quality of the public services are some justification for high taxes, and measures to simplify the tax system have been introduced since 1998. Income tax accounts for 34.9 percent of total tax revenues, while value-added tax (VAT) contributes 35.4 percent. In addition, local governments levy other indirect taxes .

The tax system is plagued by tax evasion, however. Many economists point to this problem as one of the main challenges Italy needs to resolve in the near future. The government is improving the situation, but there is still an enormous amount of work to do. Aside from the considerable sums of money that entirely escape the government due to the strength of the informal economy, there is significant income tax evasion. Employees in both the public and private sectors have their tax deducted from their paychecks and do not have to submit tax declaration forms. However, employers, self-employed professionals, and business owners must fill out tax forms and declare their profits. Huge numbers of people in these categories falsely report their earnings, thus lowering their tax bills. The state has as yet not found a method of tackling this situation. For many years tax evasion was ignored, thanks to a commonly accepted theory that it was conducive to economic development: the money would swell either consumption or investment. But tax evasion is clearly putting a strain on public finances, and its effects are particularly negative at a time of increasing cutbacks in public services. The International Monetary Fund (IMF) recognized the problem in 1998 and pointed out that far-reaching reforms had to be undertaken if tax evasion was to be reduced. The government is currently implementing certain reforms that are expected to make the system more coherent and make evasion less common.

User Contributions:

This article is really very informative .would like to know more about the present Berlusconi Govt, the various coalitions and the future of the italian economy.


Sudhanshu Sinha
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