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Two ideas for growth

Taxes reduced to 5% if you’re under 35 and start a business. And complete tax exemption for venture capital funds that invest in innovative activities. This is how the Italian budget package will deal with the future.

Two ideas for growth

This is Italy Team

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By Stefano Caviglia

Two steps toward the future. Small ones, perhaps, and with limited economic effect, but capable at least of indicating a trend. Articles 27 and 31 of the financial law approved by the Italian parliament are, with other more general provisions, stimuli for growth. They should make the medicine Italy's Minister of the Economy Giulio Tremonti says the country has to take to overcome the lack of confidence of the international markets a little less bitter. Both provisions refer to new businesses, historically among the main expressions of the vitality of our economy, the flow of which appears to be recovering after the sharp drop in the early years of the crisis. The balance is now clearly positive (410,000 new companies against 338,000 closures in 2010, according to data published by Infocamere), but there could be even more, if the legislature acts to encourage, rather than hinder, as often occurs, these new initiatives.

The government's first move in this direction (article 27 of the law) establishes a particularly facilitated fiscal scheme for young and unemployed founders of new businesses. The previous legislation, introduced in 2008 by the Prodi government had already provided favorable fiscal conditions with taxes reduced to 20% for single-partner companies (including VAT number holders) opened starting that year by young people or employees laid off from their jobs. It was a much-appreciated incentive at the time, and has now been reinforced, multiplying it - if it is possible to make a calculation of that kind - by four. The executive branch decided to revive and improve that law in two ways, first by lowering the percentage drastically (from 20 to 5%, hence quadrupling the reduction), and second by limiting it, from a temporal standpoint, to a maximum of four years in addition to the year of founding the company. The idea, in its initial draft, was basically that of granting new businesses more money to facilitate startups, but for a shorter time, with the consequence of reducing the impact on public funding, so that the balance on the maneuver was at first expected to be positive.

 

Just hours before the final vote on the text, however, a sort of «blitz» by the Youth Minister Giorgia Meloni managed to change the sign of the article by introducing a new element into the government's maxi-amendment: the abolition of the five year time limit for all those under 35. In other words, from now on anyone who opens a new company or has opened one since January 1, 2008 (but always a physical person and with a maximum turnover or income of 30,000 euros a year) will have the right to facilitated taxation at 5% without a time limit. The only limit is, obviously, the age of 35, which sharply characterizes the measure in favor of young people. If you found a company at the age of 30 you will have the benefit for five years, but you'll have it for 10 years if you're only 25 and 15 years if you go into business at 20. «For youth employment» says the minister «it is nothing less than a revolution. The fiscal regime introduced today is the most favorable anywhere in Europe. I am grateful to the government and the majority for accepting my request».

It would be impossible to estimate the economic impact of the measure now, but to understand its importance from the standpoint of the potential beneficiaries, we need only keep in mind that, in 2010, over 261,000 new single-partner companies were founded (and 248,000 closed), with a positive balance of over 13,000. This gives us a good parameter for measuring its effectiveness: if this number increases significantly in the coming years, we can say that the measure has had a positive impact.

In the meantime, a favorable comment comes from the head of the department of the Ministry for Economic Development, Giuseppe Tripoli, known in Italy as «Mister SME» who has been given the task of representing small Italian enterprises in Europe. «Facilitating people who want to go into business for themselves is important» he says «because this is a sort of Italian dream, and many Italians have gone into business just as a response to economic crises and dismissals. It is important to motivate young people, in particular, because all the statistics say that the decision to go into business for oneself is generally made before the age of 35».

A similar «fertilizing» effect, though indirect, is the aim of article 31 of the law, regarding companies with a high growth potential. In this case, venture capital funds should be the catalyzer, and their earnings are exempt from any direct taxation, on condition that they invest at least 75% of the capital collected in business initiatives that can be defined as innovative in the broadest sense (classified in various ways: seed financing, start up financing, early stage financing, expansion financing). Also in this case, there are specific requisites. Among others: investing in companies that are not quoted on the Stock Exchange, that have their headquarters in one of the EU countries or European Economic Space, that are prevalently owned by physical persons, established by not more than 36 months and with a turnover not exceeding 50 million euros.

The idea is to use fiscal leverage as an incentive for innovation, love of risk and enhancement of productivity, ingredients which have been in rather short supply in Italy for several years. From this standpoint, the most important provision is the extension of detaxation, benefiting both workers and enterprises, of the salary of productivity. It is a measure that concerns every business and is not solely focused on startups. But its effects will be positive for them as well, and for all the Italians who are willing to work more and harder and, in exchange, would like to earn more.

 

 

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