How a home-improvement subsidy is wrecking Italy’s public finances

JUST THINKING about it “gives me a stomach ache”, said Italy’s finance minister, Giancarlo Giorgetti. He was referring to a home-improvements subsidy that has turned into the fiscal equivalent of King Kong: a monster running amok, wreaking havoc on the country’s seldom-robust public accounts. On April 9th Mr Giorgetti revealed that claims of the subsidy, known as the “superbonus”, made in the four years that the scheme has been running, together with claims of another that offsets the cost of renovating façades, would eventually drain the treasury of €219bn ($233bn). That is almost 10% of Italy’s GDP last year. How on earth did things get to this point?

Giuseppe Conte’s second government, a left-populist coalition that ran Italy from 2019 to 2021, introduced the superbonus in 2020 at the height of the covid-19 pandemic. The idea was to stimulate the stricken economy with a measure that was also environmentally beneficial. The government offered to pay homeowners 110% of the price of energy-saving renovations. Its other initiative covered 90% of the cost of doing up the front of a building. The cash was not to be reimbursed directly, but in the form of tax credits that could be sold on. The two measures have certainly helped to reinvigorate the economy. The turnover of Italy’s construction sector grew by 31% in the four years to the end of 2023; in other big European economies it has been flat at best. That has helped Italy recover more quickly from the pandemic than either France or Germany have managed. But success has come at a huge price.