The 2017 budget approved by Parliament aims to encourage development and employment while maintaining public accounts under control. The new budget law (Italian Version), – the first one to incorporate the stability law, pursuant to the reform of budgeting provisions – is in force as of 1 January 2017.
It attempts to ‘fuel’ the engine of growth by cutting taxes and increasing spending on investments. It also allocated funds for struggling families and to improve social inclusion. Overall, the budget contains expansive measures amounting to a net of € 27.03 billion in 2017 (in terms of net indebtedness) of which € 16.515 billion in reduced revenue and € 10.524 billion in increased spending.
Funding for these interventions currently amounts to € 15.043 billion, of which € 11.242 in additional revenue and € 3.801 in reduced spending. The additional revenue does not come from a tax increase, but from a broadening of the tax base achieved through measures to fight V.A.T. evasion, one-off measures that accompany the reform of tax collection processes (including the so-called “scrapping” of tax collection notices pursuant to Fiscal Law Decree n. 193 of 220 October 2016, converted with amendments by Law n. 225 of 1 December 2016 – Italian Version) and simplification of compliance, and from the sale of broadband frequencies. The remaining € 11.996 billion come from the use of available budget margin arising from the difference between net indebtedness tendencies and programmed net indebtedness, as authorized by the Parliament in light of the spending for recent earthquakes and for the management of the migrant crisis.
The consolidation of public accounts continues in 2017: the deficit is expected to amount to 2.3% of gross domestic product, an improvement over the 2016 estimate of 2.4%, while the debt-to-GDP ratio is expected to fall compared to 2016.
The expansive measures include tax incentives for building renovations, energy retrofitting, and compliance with seismic design requirements; resources for the strengthening of public investments for infrastructure building and for environmental risk management measures; support for private investment with particular regard for small and medium enterprises, innovative start-ups, and spending to adapt productive processes to technological innovation; measures to attract foreign investment; incentives for productivity; measures to support families and improve the birth rate; measures to face the earthquake emergency; and funds to renew public sector contracts after a seven-year freeze.
With regard to taxation, in addition to the cancellation of norms that would have increased V.A.T. and other levies by over € 15 billion, it should be pointed out that 2017 will also see a reduction in the corporate tax rate from 27.5% to 24%, pursuant to the 2016 stability law.
|Effects of the 2017- 2019 financial plan net of consolidation – Net indebtedness (millions of euros)
|- Draft budget law
|- Fiscal decree
|- Draft budget law
|- Fiscal decree
|NET VARIATION OF REVENUE
|NET VARIATION OF SPENDING
COMPLIANCE WITH SEISMIC DESIGN REQUIREMENTS
The budget introduces a tax deduction of 50% for expenses incurred to comply with seismic design requirements for buildings in high-risk areas carried out between 1 January 2017 and 31 December 2021, and for a total amount of up to € 96,000 per year. The incentive applies to homes and commercial properties and consists of 5 annual instalments of equal value each; it can be raised up to 80% if the works result in an improvement in seismic risk category. In case of interventions on shared parts of buildings the deduction is raised up to 85%, depending on the improvement in seismic risk category. Another novelty is the possibility of ceding the credit from the deductions for interventions on condominium property to the contractors who carried out the work.
The Budget Law makes expenses for energy retrofitting incurred in 2017 eligible for a tax deduction of 65% in 10 annual instalments. Additionally, energy retrofits in shared parts of condominium buildings will be eligible for the deduction up to 31 December 2021. In this case, the deduction can be as high as 75% if the interventions are substantial and result in improved energy performance in both winter and summer. The deduction applies to total expenses of no more than € 40,000, multiplied by the number of units comprising the building. IACP public housing is also eligible for the deductions.
The 50% income tax reduction in ten annual instalments is extended to spending for building renovations sustained in 2017 (up to € 96,000 for each unit). Also extended is the 50% tax deduction on the purchase of furniture and major appliances in high energy efficiency classes, applicable to expenses incurred in 2017 up to € 10,000 euro, and destined for use in building units being renovated. The deduction is applied in ten annual instalments.
SUPPORT FOR SMEs
The budget law extends the so-called ‘Nuova Sabatini’ measure that calls for funding for infrastructure and capital goods. This measure is highly appreciated and heavily used by SMEs, especially in the manufacturing sector. So far the funding granted by banks and insurances thanks to the ‘Nuova Sabatini’ measure amounts to about € 3.2 billion, and € 4 billion if we consider orders for the last few months. About 8,700 enterprises have made over 12,000 applications. Measures to support SMEs also include € 900 million in refinancing for the 2017 Indemnity Fund. Starting in 2017, there will also be more incentives for investment in start-ups, innovative SMEs, and SMEs in social impact sectors.
RESEARCH AND DEVELOPMENT
The tax deduction for spending in this category is raised from 25% to 50% of expenses beyond the average investment in research and development made during the three previous years. The maximum amount of the annual benefit is raised from € 5 million to € 20 million. The number of eligible beneficiaries is also expanded, as the tax deduction is also applicable to research activities carried out by Italian enterprises on the basis of contracts with enterprises located in other European Union countries.
SUPER- AND HYPER-AMORTIZATION
The budget law extends the super-amortization of 140% on the purchase of new capital goods to 31 December 2017 or 30 June 2018 on condition that the purchasing order has been accepted by the seller and at least 20% of the price has been paid by 31 December 2017. In order to facilitate innovation processes under ‘Industry 4.0’ the amortization can be increased to 250%, the so-called hyper-amortization for investments in the digital economy.
The budget law introduces the Individual Savings Plans – (Piani individuali di risparmio - PIR). The goal is to channel family savings towards productive long-term investments, thus encouraging the growth of Italian entrepreneurship. The natural persons who invest their savings in the financial instruments of Italian and European businesses and industries based in Italy will enjoy a major tax incentive: tax exemption on the profits from these investments, on condition that said investments are maintained for at least five years.
VISAS FOR INVESTORS
Inspired by experiences in other European Union countries, the budget law introduces immigration regulations that help attract investment to Italy. Anyone who invests at least € 1 million in the capital of an Italian business or purchases at least € 2 million in Italian treasury bonds (with the obligation of maintaining the investment for at least two years) will be issued a visa and residency permit. Visas will also be issued to anyone who makes a donation of no less than € 1 million in the cultural or scientific research sectors.
REVERSING THE “BRAIN DRAIN”
The budget law renders permanent tax incentives to facilitate the return to Italy of university professors and researchers living abroad; these incentives would have otherwise expired in 2017. Thanks to this incentive, only 10% of income is taxed, while the remaining 90% is tax-exempt. The incentive applies to the fiscal year in which the researcher returns to Italy plus the following three years. Additionally, starting in 2017 highly-specialized workers and managers who return to Italy and commit to remaining long-term, will pay no tax on 50% of the income produced in Italy. The benefit is extended to citizens of non-EU countries with which agreements are in place on the exchange of information in the taxation field.
Starting on 1 May 2017, and continuing experimentally until 31 December 2018, the budget laws institutes an advance pension (APE), that allows individuals at least 63 years old and with 20 years of social security payments to take early retirement; they will earn the right to a retirement pension within 3 years and 7 months. The advance pension is paid in monthly instalments by a financing institution. Applications must be submitted to INPS. The loan is returned in monthly rates for a duration of twenty years once the right to a retirement pension has been acquired. The loan is covered by a mandatory insurance policy. The minimum duration of the APE is 6 months. The minimum and maximum amounts for the loans will be established in a forthcoming Decree of the President of the Council of Ministers. No later than 31 December 2018 the Government will evaluate the results of the experiment to assess whether to extend it.
NEW SAFEGUARDS AND PRECOCIOUS WORKERS
New safeguards will be introduced for 25,000 workers who will be able to retire under the rules in force prior to the Fornero reform. Starting on 1 May 2017 workers who have paid at least 12 months of social security for periods of work prior to their 19th birthday and who are in a vulnerable position – unemployed, assisting a disabled family member, or whose capacity to work is reduced – can now retire after 41 years of social security payments, earlier than required under the Fornero law.
The 14th-month payment increases by an average of 30% for pensions of up to € 750 a month and is extended to pensioners with an income of up to twice the INPS minimum (about € 1,000). As of 2017, about 3.2 million pensioners will receive 14th-month payments, of whom 2 million already receive it and will see it increased. For 1.2 million people this will be a new benefit. Salaried workers earning no more than € 750 a month (1.5 times the INPS minimum) and with up to 15 years of social security payments will receive € 437. If they have up to 25 years of social security payments they will receive € 546 euro, and with over 25 years € 655. Those with an income between 1.5 and 2 times the INPS will receive a 14th-month payment (which they were not eligible for previously) of between € 336 and € 504.
The social pension advance (APE) is a stopgap measure for workers with at least 30 years of social security payments and who are undergoing a period of vulnerability: unemployed individuals without a social safety net, persons with a certified disability of at least 74%, and those assisting seriously disabled family members. Also eligible are workers employed in particularly demanding activities (such as construction or mining workers, drivers of heavy goods vehicles, nurses, kindergarten teachers, porters) with at least 36 years of social security payments. These individuals will receive a payment proportionate to their pension up to a maximum of € 1,500. After the stopgap period of 3 years and 7 months is over they will receive their pensions. The social APE does not require a bank loan that will have to be reimbursed.
NO TAX AREA
The budget law includes a tax cut for pensioners. It aims to support low-income citizens and does so by expanding the number of people eligible for the so-called “no tax area”, the non-taxable minimum income. All pensioners, regardless of age, will not pay income tax if their total income amounts to € 8,000 or less. The budget law makes this tax cut more uniform; previously, it was less favourable for pensioners under the age of 75.
In order to boost growth and salaries and encourage productivity, tax deductions for productivity bonuses are expanded. The amount of the bonus subject to a 10% tax instead of the income tax and additional levies is increased from € 2,000 to € 3,000. At the same time, the maximum income threshold to be eligible for this deduction is raised from € 50,000 to € 80,000.
SOCIAL SECURITY PAYMENTS FOR AUTONOMOUS WORKERS
Starting in 2017, self-employed workers with a VAT registration number and registered in the separate national insurance and pension scheme for autonomous workers (and no other pension scheme) will see a reduction in their tax rate to 25% (a reduction of 4 percentage points).
STUDENTS AND TRAINEES
Companies who hire students who have undergone traineeships or work-related learning programmes to an open-ended contract will receive tax exemptions. This exemption applies to contracts underwritten between 1 January 2017 and 31 December 2018 and applies for three years, with the exception of bonuses and social security payments to INAIL, with a maximum annual threshold of € 3,250.
IRES AND IRI
In 2017 the IRES corporate tax rate will be reduced from 27.5% to 24%, a measure already included in the previous stability law with the goal of improving the competitiveness of Italian companies, particularly versus the main European countries. The IRI income tax rate for entrepreneurs will be set at 24%, the same as IRES, instead of being included in overall income and thus subject to the progressive IRPEF income tax, which can result in much higher tax rates.
RAI TELEVISION TAX
Starting in 2017 the annual RAI television licence fee will be reduced from € 100 to € 90. The 2016 Stability Law had already reduced it from € 113.50 to € 100. The Budget Law introduces an additional 10% reduction, made possible by the new tax collection modalities, which adds the television tax to the electricity bill thereby reducing tax evasion.
The IRPEF agricultural income tax is abolished for 2017-2019. Under the new budget law, farming income and income from land ownership is not included in the IRPEF taxable income of farm workers and agricultural entrepreneurs. This measure aims to support the competitiveness of Italian farming businesses and builds upon the 2016 Stability Law, which cut the IRAP and IMU property taxes on agricultural land, to which a tax rate of 1.9% had applied.
Starting in 2017 the social security payment rate for self-employed workers with a VAT registration number and registered in the separate national insurance and pension scheme for autonomous workers (and no other pension scheme) is lowered to 25%. This is a reduction of 4 percentage points for 2017 and 8 percentage points for 2018. It is also a reduction of 2 percentage point compared to the 2016 rate.
DUTIES, VAT, AND LOCAL LEVIES
The de-activation of the safeguard clause, included in previous stability laws avoids an increase of about € 15 billion worth of VAT and levies which otherwise would have entered into force on 1 January 2017. The budget law also extends to all of 2017 the freeze on the increase of duties and additional levies.
PUBLIC SECTOR EMPLOYMENT
A total of € 1.9 billion for 2017 and € 2.6 billion for 2018 have been earmarked for this sector. These resources are destined for contract renewals and raises for employees of the state administration and for the hiring of permanent staff in the state administration, including police, firefighters, and revenue collection agencies. The € 80 bonus for non-executive personnel in law enforcement agencies, the armed forces, and fire and rescue services is extended to 2017 in light of the increased security needs. A share of these funds (€ 140 million in 2017 and € 400 million in 2018) is destined for the Ministry of Education and Universities to strengthen school autonomy and hire new personnel.
SUPPORT FOR FAMILIES WITH NEWBORN CHILDREN
In order to support families with children, the budget law includes a contribution of € 800 for each child born or adopted starting on 1 January 2017 as a way to help with initial expenses. This contribution is additional to the so-called baby bonus, which has been confirmed for 2017 as well. Children born from 1 January 2016 and up to three years of age are eligible for bonus of up to € 1,000 a year for enrolling in kindergarten, whether public or private. Additionally, the € 600 babysitter voucher has been extended to 2017 and 2018, while mandatory paternity leave has been extended two days in 2017 and four days in 2018.