It's payback time for Italy's artful dodgers

Tax on tax on tax? No wonder a new finance minister is attempting to reform the system, says Andrew Gumbel

People often laugh at Italy as a nation of tax dodgers, but perhaps that's not quite right. The really tricky stunt to pull is not evading taxes (although there is no lack of masters in that art) but, on the contrary, trying to pay them.

Anyone playing honest John with the Italian treasury is rapidly immersed in the kind of bureaucratic mayhem that once precipitated the fall of Byzantium. We're talking 300 different taxes on income alone, and a tax declaration form to make even the most dedicated accountant weep.

The Rome government has issued 2,900 laws, decrees and circulars on taxation since 1980 in a frenzied but largely unsuccessful attempt to plug the growing hole in the country's public finances. No stone has been left unturned in the hunt for extra public revenue: there is a special tax on fridges in butchers' shops, another on takeaway pizzas.

Italy is probably the only country in the world where taxpayers have to pay money to the government before they have filled out their tax returns, and, quite often, they have to shell out afterwards, too. Sometimes they are informed they have to pay a new tax, but aren't told when or to whom, with the result that thousands of people inadvertently find themselves branded as "outlaws" by the finance police.

For years, government ministers - bewildered by the mess, like everyone else - have preferred to ride with the system rather than undertake serious reform. Until last week, that is. Vincenzo Visco, the new Finance Minister, proved himself a brave man by announcing a "profound transformation" of the tax regime, to begin with the 1997 budget.

There would be no more than 10 taxes on income, he said. Moreover, a whole array of tax receipts, invoices, stamps and what he described as 19th-century paraphernalia will be swept away.

It will be a daunting task. The system has been flying by the seat of its pants for so long that it is riddled with anomalies, anachronisms and absurdities. It emerged recently that 5 million householders are still being charged a special tariff to drain the Pontine marshes south of Rome - an operation that was concluded by Mussolini in the 1930s.

According to an investigation conducted by La Repubblica, the state "borrows" money raised from car tax to top up its health service budget. Taxes supposed to pay for public housing projects end up helping to pay off the deficit. Money set aside for job retraining goes into social security instead.

As for indirect taxes, they seem designed to squeeze the consumer as far as possible. Household bills for gas or electricity include one kind of tax. This tax, along with the rest of the bill, is subject to VAT. Then, at the moment of payment, the bank or post office demands yet another tax. Paying tax on tax is universally frowned upon by fiscal experts: as for paying tax on tax on tax - well, it can only happen in Italy.

Behind all this is the deficit, running at more than 120 per cent of GDP, around twice the level stipulated by the Maastricht convergence criteria. For the past 20 years, Italy has been on an inexorable downward spiral. The bigger the public debt, the more taxes the state imposes; the more taxes the state imposes, the more people are tempted to evade them; the more people evade their taxes, the bigger the public debt grows.

Tax-paying Italians now give up around 50 per cent of their income to the treasury, the second-highest rate in the world after Belgium (which also has big deficit problems) and far ahead of the 33 per cent average in Britain.

That might be politically acceptable if Italy had first-rate public services, but it does not. What is more, many small businesses can now survive only if they conceal at least a part of their taxable earnings. Some parts of the country, especially the super-wealthy north-east, are on the verge of full-scale revolt. Already one group in Treviso, near Venice, has started organised disruption of the tax police's work.

Mr Visco's task is thus of the greatest delicacy. His proposals are not only brave; they may be the only way to save the whole system from collapse.