Italian government to scrap property tax

Like so many European countries, the Italian government is under increasing pressure to bring in as much money as possible in the short to medium term to assist with centrally EU financing. As a consequence, the Italian government recently brought in a very unpopular property tax estimated to bring in a potential €4 billion per annum. However, this tax has caused major issues within the Italian government and indeed the authorities have now confirmed amendments are on the way which could see standard primary residences excluded from the tax.

There is a feeling that the authorities will still maintain the property tax on the luxury end of the market which would be an obvious vote winner in the eyes of the general voting public in Italy.

Impact on property markets

While any tax that increases the cost of a property will obviously have an impact upon potential returns for investors, it was the fact that the authorities brought in this tax as a means of injecting a short sharp cash inflow into government coffers which caused alarm. If the authorities were willing and able to introduce a relatively short-term property tax, to support the creaking Italian economy, could further tax increases follow?

If any investment market is susceptible to change there will be confusion, rumours and counter rumours although once any changes have been confirmed and introduced the market can digests this and valuations will be adjusted accordingly. What markets dislike most of all is uncertainty because this allows for varied interpretation of future policies and can lead to very wide differences in valuations.

What next for the Italian government?

The forthcoming changes to the Italian property tax are being introduced on a purely political basis as a means of maintaining some form of stability within the government. We have also seen delays in a planned VAT hike and while this is all going down very well with voters across Italy it is not going down too well with the European Union which is helping to fund the Italian government’s budget shortfall.

Nobody would like to be in the situation of the Italian government, or indeed the Spanish government as a further example, because on one side they have voters wanting tax reductions while on the other side they have the European Union demanding further cost savings and revenue streams in exchange for financial assistance. While the European Union crisis is no longer headline news it is an issue which has not gone away, something which could take decades to resolve and we will no doubt see yet more volatility along the way.

European property markets

While governments across Europe are struggling to control their budgets we have seen a number of different strategies with regards to property. We have the Spanish government encouraging overseas investors while we have the Italian government looking initially looking to introduce more property taxes, something which was not well received by the market. It is this confusion between strategies which is causing unrest amongst European property investors and while many will argue there are potentially attractive returns in the long-term, is there further downside in the short term?

Quote from PropertyForum.com : “Average house prices are edging up in many parts of the UK helped by increased confidence and the effect of the government’s Help to Buy scheme, according to analysts.”