Misguided criticism of the suspension of the motor vehicle tax for small cars

The motor vehicle tax, despite its name, is a property tax levied on the ownership of cars and motorbikes. In light of this, it is difficult to criticise the government’s measure which, for the year 2027 alone (for the time being), will exempt from the tax cars (one per person) with a power output not exceeding 80 kW: what further wealth can reasonably be attributed to owners of small cars who use their vehicles to commute to work?

One could even go further by questioning whether it is appropriate to maintain the levy on other vehicles: with a tax burden of 42.9 per cent of GDP and a marginal personal income tax rate of 43 per cent (on income of 50,000 euros and above), to which regional and local surcharges are added, is it fair to burden citizens further with a wealth tax on cars and motorbikes?

The opposition’s criticisms are particularly half-hearted. Take, for instance, the argument that the owner’s income should be taken into account to prevent the ‘rich’ from evading the tax: one cannot distort a levy which, by its very nature, does not take into account the income of those being taxed (it is a wealth tax!), in order to address circumstances that are infrequent, if not downright rare. The other criticism, put forward by the President of the Tuscany Region, Eugenio Giani, appears less unfounded; he highlighted that there could be aspects of the relief measure whose constitutionality is questionable. In the background lies the contradictory stance of a government which, on the one hand, is seeking to implement ‘differentiated autonomy’ and, on the other, is cutting the regions’ own resources.

These observations are also unconvincing. As for the first, because the motor vehicle tax is a levy established and regulated by the State, over which the State retains the right to intervene: nothing can be held against the government, given that the measure stipulates that the regions’ loss of revenue must be compensated by the State. As for the second point, this is because, according to the Constitutional Court’s ruling, tax concessions are unlawful only when they are unreasonable because they are arbitrary and discriminatory. As for the third point, much will depend on the manner in which the regions’ loss of revenue is compensated should the concession become permanent. If it were replaced by a fixed share, for example, of personal income tax (IRPEF) revenue – that is, a share that is not adjusted year on year to account for the shortfall in revenue calculated on the basis of the number of vehicles that would have been subject to the tax – the regions’ financial autonomy would in all likelihood be further strengthened.

Then there is the issue of funding, which has never been raised with such rigour as in this case. Minister Giorgetti pointed out that part of the necessary resources, estimated at around 2.3 billion, comes from savings on the NRRP funds which, as they cannot be returned, have become national resources.

Added to this is the controversy over the demagogic nature of the measure – an ‘election handout’ – which, being limited to just one year, is said to be intended to help the ruling party win support ahead of the forthcoming elections.

It is certainly true that it would be better to fund tax cuts with corresponding spending cuts, but it is also true that it will be very difficult to reverse course, whoever wins the 2028 elections (especially if, as President Meloni has said, the measure is to be enshrined as a structural provision in the Budget Bill). It is therefore clear that, given the widespread realisation that there is no scope for increasing the tax burden, efforts will be made to maintain the tax relief whilst keeping the books as balanced as possible and, consequently, sooner or later, by reducing expenditure (or at the very least, not increasing it).

As for the link between the government’s decision and the elections, it is rather naïve to be surprised, given that all democratic governments in every country in the world tend to do this towards the end of their term of office. It is not ideal, of course, but in light of all this – and all the more so in a situation where the tax, which is currently suspended, is blatantly unfair – it is worth recalling the words of Milton Friedman: “I am in favour of cutting taxes, under any circumstances, on any pretext, for any reason, whenever possible.”

Andrea Giovanardi

Full professor of tax law, University of Trento