The European Commission has warned Italy’s new right-wing government against adopting plans to encourage the use of cash, which Brussels says would contradict Rome’s obligation to tackle tax evasion.
Italy’s Prime Minister Giorgia Meloni, leader of Italy’s arch-conservative Brethren, wants to raise the legal limit on cash transactions to €5,000, reversing a pledge by previous Italian governments to lower the limit from the current €2,000 to €1,000 from January 1. Meloni also wants to give merchants the right to refuse digital payments for transactions under €60 without fear of penalties.
However, in its assessment of Italy’s draft budgets, the Commission found that measures to encourage the use of cash violated economic guidelines. If Meloni’s government goes through with the plans, the commission said, it would mean ditching previous steps by Rome to reduce tax evasion, a condition of receiving €200 billion in EU recovery money.
The commission said the measures were “not in line” with previous advice to Italy to “tackle tax evasion. . . by strengthening the mandatory use of e-payments”.
Meloni’s first budget was seen by the EU and investors as a test of their commitment to fiscal discipline. Officials in Brussels say the new government’s spending and deficit-reduction plans are prudent. But they fear the cash stimulus measures, seen as a populist concession to Meloni’s small business supporters, could reduce tax revenues.
“The overall size of the household is fine, its composition less so,” said a senior EU official.
Italian businesses are now required to accept digital payments for transactions of any value, and can be fined at least €30 if they refuse – a threat that infuriates small business owners.
However, Meloni has already hinted that she might be ready to revise her digital payments proposals. “The threshold of 60 euros is a guide – for me it can be even lower,” she said in a recent social media video after critics called her proposals a step backwards.
She acknowledged that promoting electronic payments is one of the aims of the EU-funded Covid recovery plan, adding: “We’ll see how it goes.”
Meloni has argued that Italy’s current low limits on cash transactions puts the country at a disadvantage compared to other European countries, many of which have no cap at all on the use of cash. She has also dismissed the idea that greater use of cash enables and encourages tax evasion.
“The more I can legally use cash, the less I will be forced to avoid it,” she said in a video posted to social media this week.
Meanwhile, as part of its own anti-money laundering efforts, the European Council this month proposed that the EU should introduce a bloc-wide cash transaction cap of €10,000, but the measure has yet to be accepted.
Following the council proposal, Italy’s Infrastructure Minister Matteo Salvini tweeted that the European Council had “reaffirmed the freedom to use one’s money as one pleases,” with a proposed cash cap double that of Italy’s.
Italy currently has one of the lowest rates for digital payments in the EU, although their usage increased by 22 percent in the first half of 2022 compared to the same period last year. The average size of a digital transaction in Italy is currently just over €47.
Additional reporting by Guiliana Ricozzi in Rome