One-Off Tax for Wealthy Italians to Reduce Debt Burden?

Italy has many riches: its ancient history, some of the world's most iconic luxury brands, and of course its culinary delights.

Piazza Venezia, Rome, Italy
Panoramic Images | Getty Images
Piazza Venezia, Rome, Italy

But contrary to widespread conception, Italians are also quite frugal. Italy has one of the highest savings rates in the OECD and holds considerable household wealth. In fact, the country's household wealth is five times as high as the country's gross domestic product (GDP).

None of this appears to add up with the country's miserable public finances.

An increasing number of Italians believe that freeing up household wealth may be the perfect remedy for Italy's debt mountain, which stands at 120 percent of GDP.

The idea of introducing a one-off wealth tax to repair Italy's ailing public finances has been discussed publicly for months, but so far Prime Minister Silvio Berlusconi has been heavily opposed to such measures, saying he would rather step down than introduce the tax. Earlier this year he called a wealth levy an" intellectual and strategic paralysis" in an interview with "Il Foglio" newspaper, adding such a measure may lead to a capital flight.

Labor unions and trade associations have repeatedly pushed for a one-off wealth tax, as they feel Berlusconi's recently announced reforms unjustly punish the ordinary Italians. The country is already plagued by one of the highest labor taxes in the world.

Bank of Italy data showed that household wealth stood at 3.65 trillion euros in the first quarter of this year.

A one off "patrimony" tax could significantly reduce the country's debt burden of 1.8 trillion euros. Some opponents have been calling for a one off tax of 10 percent.

Support has increasingly also come from economists and local politicans. The mayor of Northern Italian city Verona suggested in an interview with "La Repubblica" on Wednesday: "Why don't the people who have the money pick up the tab?" A wealth tax may also help undo the harm of tax evasion which is rampant among Italy's wealthy. Estimates put the proportion of evaded taxes at more than 15 percent of annual GDP.

Domenico Crapanzano, Head of European Rates Sales & Trading Group at Jefferies & Co tells CNBC that a one-off wealth tax may be effective in the short term but it won't be enough. Firstly, it should be coupled with an increase in the capital gains tax from currently 12.5 to 20 percent. Overall he says the country needs to focus on long term structural measures.