It doesn’t take long to realize that things work … differently… in Italy.
Or sometimes, they don’t work at all.
A large part of the Italian workforce gets paid in nero, meaning that all or some of their income is paid in cash, “under the table.” As far as the state knows, they’re not working at all.
“Those sneaky Italians!” some might say, “How dare they break the rules!” Declaring your earnings and paying the necessary taxes on them is what a proper citizen does to live in a proper state. The problem with that idea here in Italy? The “proper” part.
With individual income tax ranging anywhere from 23 – 43 percent and the corporate, sales, and property taxes that are then added, Italians can spend well over half of their income on taxes. That’s all fine and dandy if the state then works like a proper well-tuned machine. That’s not the case in Italy. Instead, money is taken and seemingly nothing is given in return (of course that’s not true, but the social services that are given in return are complicated to manage and usually late).
A big part of the problem is Italy’s bureaucracy. According to the World Bank’s ‘Doing Business’ report in 2011 Italy had one of the longest waits to get a construction permit, longest time to connect to electricity, to export goods, to enforce laws, than any other European country. It taxes its business the most and takes the longest to do it.
With rankings like those, a business is down before it can even get started.
“One study focused on Italy, where resolving a commercial dispute through the courts in 2013 took an average of 1,210 days as measured by Doing Business—about three times as long as for a similar case in Germany or the United Kingdom.7 So it is perhaps unsurprising that firms in Italy are 40% smaller on average than those in other European countries.” – 2013 Doing Business Report
That’s since been ameliorated with the introduction of an electronic filing system for commercial cases, allowing attorneys to submit the initial summons online. Sounds good right? Too bad that our attorney friend says the lawyers that run the law firm he works at don’t know how to use it, still write up their cases on paper and that the system is frequently “down” for unknown reasons.
The Italian bureaucracy is an enormous, sluggish, heaving beast that Italians must either avoid or periodically feed to keep it from attacking. It moves slowly, stamping its giant paws across entire tax brackets. No one can understand what the beast is saying, no matter his or her level of education.
You can say it just happened over time, the beast grew. I happen to think it’s purposeful.
An incomprehensible bureaucracy is just another form of tyranny. Keep your populace ignorant; reap the benefits.
Italians, however, are used to it.
Italy is a country of nearly 60 million people. They are the descendants of a strong people with thick regional ties, accustomed to being fought over and traded among rulers like sacks of flour. With little control of their own, Italy’s history for the average person is one of hunkering down and focusing on the things they can control: their family, food, language and the beauty around them. Fighting against the going-ons of the higher-ups helped no one.
In a very real sense, that’s still happening today. With each new ruler came new rules, and it seems the Italians began ignoring the rules long before it became a Republic. It was time to look out for numero uno. The only way to do that was to get creative.
New laws about exports? Change the export’s labels and sail out your goods unnoticed. Food too expensive? Grow your own on any land you find – you don’t need a deed if no one asks. King taxing the hell out of you to build his mansion? Fly under the radar and don’t get taxed.
Up to 12 percent of Italians work in nero, according to a survey from Eurobarometro, though I’d guess that few would take the survey truthfully. Actually, it’s probably a much higher percentage if you count those who work both with a paycheck and in nero, a classic move to avoid the prying eyes of the government. Low wages are rounded out by cash and everyone wins.
Hence the enormous shadow economy churning under the table, in the “black”, far out of reach of the tax system.
Tancredi Marino, a Milanese tax lawyer quoted by the Wall Street Journal, boiled it down to one sentiment: Italians longstanding mistrust of their own government.
“Many Italians just don’t trust the system,” said Mr. Marino of the law firm Pavia & Ansaldo. “Changing their mentality will take decades.”
The article published in WSJ in January of this year wrote that Italy, along with other southern European countries, has been trying to fight its booming shadow economy, saying: “From Greece to Portugal, Countries Try New Carrots and Sticks to Change Attitudes on Avoiding Taxes”
Actually, since the Doing Business Report of 2011, it seems Italy has made quite a few reforms. Besides digitizing the commercial court cases, Italy has also succeeded in cutting a bit of bureaucratic tape. Some (ahem, boring) examples from the report:
Italy made starting a business easier by reducing both the minimum capital requirement and the paid-in minimum capital requirement and by streamlining registration procedures.”
Italy made getting electricity easier and less costly by improving the efficiency of the utility Acea Distribuzione and reducing connection fees.
Italy made transferring property easier by eliminating the requirement for an energy performance certificate for commercial buildings with no heating system.
Italy made transferring property easier by digitizing cadastral maps of properties and making the maps available to notaries online.
You get the idea. And yet despite all these reforms, Italy still ranks 45th in the 2016 ease of doing business ranking. That’s with the United Kingdom ranking in at a 6, the United States at a 7, Germany ranks 15 and Spain 33. At 41st place even Kazakhstan beats out Italy. Steps have been taken, but Italy’s own bureaucracy is making the bureaucratic overhaul slow and the even slower economy means that working in nero is an Italian reality.
It’s up to you to decide whether it’s fair or not, but it isn’t likely to go away just because bureaucrats and politicians don’t like it. Without a major overhaul of the tax and social services systems, Italians will do what they do best: hunker down, work any way they can and do their best to ignore the ruling class walking over their heads.