Economist Weighs in on Euro Crisis
ROME, MARCH 1, 2012 (Zenit.org ).- The noose tightens around the Church. Forgive the alarmist opening, but the events of the past few weeks have been reminding this historian of several of the darker moments in Church history (Napoleonic invasion, Roman persecutions etc..)
In the United States, the Obama administration's health care mandate  would require that religious employers (not just institutions but also faithful private citizens) provide contraceptives and abortifacients to their employees. In Italy, religious institutions are about to be subjected to heavy property taxes to shore up the faltering economy. The technical government led by Mario Monti has been commissioned with balancing Italy's budget and along with the crackdown on tax evasion, there is also a reorganization of the tax system. While this may seem a "let's all pitch in approach" to help salvage the nation, indeed the dangers are more insidious.
To get a better handle on the implications of the new taxes, I spoke to Kishore Jayabalan, the director of the Rome office of the Acton Institute , a US based think-tank that studies society, religion, liberty and economics, to find out what the Church is facing in Italy.
The Italian papers are full of the Church and "ICI tax." First, what is the ICI and what is this big change by the Italian government.
"The ICI - in Italian L'Imposta Comunale sugli Immobili - is a local property tax," responded the Acton director, "but I should say more like 'was,' because it's been replaced by the Imposta Municipale Unitaria (IMU). Under the old ICI law, religious institutions, including ones that generates some revenue, such as residences meant for pilgrims and private clinics, were exempt, as were other non-profit/non-commercial institutions that were deemed to serve a social purpose. The IMU now proposes to re-classify some of these institutions as commercial entities and require them to pay property tax."
The Catholic Church and Italy have coexisted since 1929, hasn't the Church been required to pay these taxes before?
"The Church has traditionally been exempt from paying ICI on non-commercial entities because they serve a social purpose," Mr Jayabalan explained. "The old law actually exempted entitles that were 'predominantly' non-commercial. The new law exempts simply non-commercial entities, so there will be some re-defining of what is non-commercial or not by the Italian Ministry of the Economy. Jewish, Muslim, and other religious, and for that matter secular, non-profits were also ICI-exempt, so this was not a case of special pleading for the Catholic Church in Italy, even though Catholic institutions dwarf the others numerically."
In 1929, the Holy See and Italy signed a series of agreements, the Lateran Pacts, which were later revised in 1984. Will the ICI/IMU question affect Vatican City State?
"No, it won't. These property taxes apply to Church institutions in Italy, a separate sovereign entity from the Vatican City State," clarified the director. "The properties of Vatican City are not liable to Italian taxation of any kind, as agreed to in the 1929 Lateran Treaty." Mr Jayabalan also noted that on the other hand, while no taxes are levied against the Vatican, "millions of visitors come to Rome to visit the Vatican, and Italy benefits quite a bit from having this sovereign territory located within its borders."
Italy also benefits from the Church's presence in other ways. Four hundred and twenty thousand people work for Church structures throughout Italy and the Church hospitals, schools and other welfare activities shore up the very spotty national healthcare and educational facilities. Fourteen thousand schools and 4,712 hospitals, hospices and clinics will be evaluated and potentially taxed under the new law, which even contains a provision for collecting back taxes from 2005. What, I asked Mr Jayabalan, made the Italians put this squeeze on the Church?
"The short answer is Greece," shot back the economist, "where sovereign debt problems have forced the country to the brink of bankruptcy. If something similar happens in Italy, the Eurozone's third-largest economy, the European monetary union could be finished. Italy is faced with a massive public debt of about 2 trillion euros, or 120% of its gross national product. In the face of mounting pressure from other Eurozone members, the International Monetary Fund, and other creditors who hold Italian bonds, the Monti government has decided to try to increase tax revenues by cracking down on tax evasion, ending some exemptions and closing loopholes. For example, first homes had been exempted from the ICI tax by the Berlusconi government, but the Monti government has removed that exemption."
There is a little more going on here than saving the euro though, is there not, I asked him. Mr Jayabalan was quick to point out that, "the removal of the exemption for some religious institutions has been called for by anti-religious groups, such as the Radical Party, for a long time. These groups quite obviously disapproved of any kind of public religious activity and have taken the opportunity of the debt crisis to fulfill their anti-clerical desires. With the power to tax comes the power to control and eventually to destroy if need be. This more ideological motivation can be viewed as part of a larger global campaign to eliminate the mediating institutions of civil society, leaving only the individual before the all-powerful State."
The European Union is also very involved in the tax maneuver. In 2010, the Italian government was placed under investigation for anti-competitive behavior because of the tax benefits it offers the Church.
Of course this is not the first time the Church has been muscled out of land. Napoleon's massive cash taxes upon his conquest of Italy were designed to force noble families (generally with very close ties to the Church) out of their lands and titles. Napoleon spared the Church the niceties of taxes, choosing to simply expropriate the property. The unification of Italy as well saw Church lands, art and lives lost as the new nation was formed. But even this was nothing new. After all Nero had blamed the Christians for a fire he set to clear some land in downtown Rome, so in the end Sts. Peter and Paul and 900 other Christians were killed for a real estate deal.
Does the Church pay property taxes in other countries, I wondered. The Acton Director responded with a remarkable array of facts. "Many other countries offer tax exemptions for religious and other non-profit entities for their social work because they recognize the social benefits and want to encourage non-profit or volunteer activities, "he began. "In the US, church properties, along with those of other non-profits, are tax-exempt, this is true also in places where there is a national church, such as Greece, the United Kingdom and Scandinavia. Germany not only allows tax exemptions but also offers subsidies for churches, while in France, churches and other religious institutions have to apply for tax-exempt status but it is normally given."
With 50,000 parishes and oratories, 11,000 buildings used for educational or cultural activities, and close to 20,000 hospitals and schools, what are we looking at money-wise for the Italian government?
"Some of the estimates in the media have placed the cost to the Church at between 700 million and 1 billion euros," reported Mr Jayabalan, "though others have been as low as 100 million euros. Keep in mind that Italy's public debt is currently around 2 trillion euro. So we're talking, at the most, less than one-tenth of one percent of the debt, a miniscule amount."
As an American living in Italy and expert on economics, what is your take on this whole affair?
"There's something comical about this whole debate to me," he replied. "Tax evasion has been a time-honored and somewhat respectable practice in Italy, partly because everyone knows that the tax system is so complex and confiscatory that most people really couldn't afford to pay all the taxes they're legally obliged to and still afford to live on a modest salary. The tax authorities seem to know this and turn a blind eye to tax evasion, which only leads to more taxes being imposed to make up for the lack of tax revenue being collected. I don't understand why no one proposes simplifying the tax system to make it easier, not more difficult, to pay taxes. Lower, simpler tax paid by a broader base of taxpayers would seem to be preferable to the current tax system that encourages evasion and seeks out nuns as tax cheats!"
Indeed, I asked, what about those religious sisters living on land that they bought many years ago when it was worth very little and who are trying to live out their vocations with fewer and fewer replacements? And the schools that barely get by with the meager tuitions (by American private school standards), or the hospitals? There is obviously no exorbitant wealth around these structures in Italy. What will happen to them with the ICI? Won't they end up losing their land to the government if they can't pay?
"The Italian Bishops Conference has asked for some clarification on the new IMU rules," responded the Acton director, "so it's not clear what the impact of the law in its final form will be. But it would certainly increase the operating costs of these institutions and most likely force some of them to close down. Institutions that are commercial entities have been paying and will continue to pay property taxes; the exemption applies only to non-profits, which would include some schools and hospitals."
At the end of the day, I can't help but ask, is this going to work? Can this maneuver really make a difference?
Mr Jayabalan shrugged. "It seems crazy to try to bring down the debt solely through austerity measures such as increasing taxes and cutting public spending when the real problem is the lack of economic growth and opportunity, mainly due to the burdens the Italian government and trade unions have placed on enterprise." On a brighter side though, he notes that "the Monti government has started to propose liberalization measures, starting with the pharmacies and taxis."
That said, Mr Jayabalan noted that "according to a recent World Bank study called Doing Business, Italy ranks 134th in ease of paying taxes and 158th when it comes to enforcing contracts. The entire climate for doing business needs to be reformed in order to make the economy grow, and this would boost tax receipts as well as cut down on public spending in terms of unemployment assistance, not to mention the efficiency gains coming from less regulation. To paraphrase a popular slogan, the Italian debt can't be paid off on the backs of the pilgrims who want a morning cappuccino."
Ironically the announcement of the new Church taxation came on February 10, the eve of the anniversary of the Lateran Pacts, when the Italian state recognized the sovereignty of Vatican City State and paid an indemnity for the thousands of buildings, property and art expropriated from the Church. One might wonder if the Italian State isn't trying to get a little of that back.
Elizabeth Lev teaches Christian art and architecture at Duquesne University's Italian campus and University of St. Thomas' Catholic Studies program. Her new book, The Tigress of Forlì : Renaissance Italy's Most Courageous and Notorious Countess, Caterina Riario Sforza de' Medici" was published by Harcourt, Mifflin Houghton Press this Fall. She can be reached at email@example.com