English
Italiano "Fare Futuro": Incompetent Lobbyists, in Total Disarray
The tobacco multinationals created, and have supported since 2005, a system that has made them rich at the expense of the country, and they have not realised yet that this system cannot continue.
Alberto Giorgetti, Finance Undersecretary
Instead of modifying the system to adapt it to the new European Community directives, the tobacco multinationals, backed in the Government, by Gianfranco Fini’s man Alberto Giorgetti, have shown how unprepared they are. They have exceeded the limits of a lobby that is now falling apart, a lobby that the country must finally get rid of.
Italy’s totally unacceptable law decree no. 94 of 23/7/2010, devised at the last moment and hastily converted into law, created conditions that are forcing politicians to finally bring order back to the entire tobacco taxation legislation.
To guarantee tax revenue in the coming years or to increase it, from now on, the Government can only regularly raise the aliquot of the excises, and the cigarette manufacturers will have to give up part of their unjustifiable profits.
What the Lobbyists Have Done
The last excise increase was made with a Decree of the Ministry of Finance on the 15th of October 2004; it raised the base aliquot from 58% to 58.5%. According to the measures of the 2004 financial law, this aliquot increase should have ensured a greater fiscal intake of 650 million euro. This greater income was reached.
In a competitive market, increasing the aliquot means that the manufacturers have to reduce their profits, or raise their prices if they do not want to give up some of their profits. But if they raise their prices, besides providing a further increase in tax revenues, they will also see a reduction of their market share that will go to those manufacturers who do not raise their prices.
In 2005, the three major cigarette manufacturers (PM, BAT and JTI), together with the AAMS, created a cartel to prevent further increases of the base aliquot: a coordinated price increase should have ensured a growth of the market value and consequently, an increase of the tax revenue necessary to achieve the financial objectives of the State, and an increase of the makers’ profits, without increasing the base aliquot.
The greater tax income generated by an aliquot increase determines a cost for the community equal to the greater income, while an increase of revenue generated by higher manufacturers’ prices determines for the community a cost higher than the greater revenue obtained, because part of the price increase goes to augment the profits of the manufacturers.
For this system to work, the minor producers, too, not part of the cartel, would have to increase their prices. In 2005, then, came the introduction of the “minimum price”, which was based on the price ranges of the most sold brands, that is, the brands of the manufacturers of the cartel. This minimum price would rise with the increase of their prices; so, they would not lose their market share.
The cartel system of the big producers and the AAMS allowed them until 2008, though damaging the entire collectivity, to reach the revenue objectives programmed by the Government, while the revenue objectives of 2009 would not be reached unless it was lowered during the year.
Today the price increases generated by the producers’ cartel are no longer enough to guarantee an increase in the tax revenues, nor even to maintain the revenue level already reached. In fact, the sales figures have gone down more than they have grown following the increase of prices, this for various reasons: anti-smoking campaigns, the erosion of family income, the illegal market.
The manufacturer’s cartel and the AAMS have made the manufacturers rich and the country poor, allowing the three producers involved to earn unjustifiable profits at the expense of the Italian taxpayers. Thanks to this system, today the cigarette manufacturers earn much more in Italy than they earn in other European Community countries. The same tax income could have been obtained by raising the aliquots in a competitive market; this would have prevented the manufacturers from increasing their profits to disproportionate levels, as they have been doing since 2005.
To maintain the tax revenue levels of the past year or to raise them, this cartel must be stopped, the base aliquots must be systematically raised and the market liberalized; this will prevent the aliquot increases from determining continuous price rises.
And the market has been liberalized, by the sentence of the European Court of Justice that condemned Italy to abolish the minimum price.
Are taxes a priority?
The government’s priorities, as Prime Minister Silvio Berlusconi has declared in these days, are the “Mezzogiorno” the south of Italy, justice, federalism and taxes. What better test bench than the modernization of the fiscal system governing tobacco products, which is going to have to be modified anyway, to conform to European regulations!
An aliquot increase would bring in more tax revenue and allow the Government to correct its objectives upwards, thanks also a resizing of the excessive profits of the producers.
Profits, moreover, on which the cigarette manufacturers do not even pay taxes in Italy.
No Comments