Italy is facing a long-overlooked yet increasingly acute fiscal reality. Data shows that currently about 60% of residents do not actually pay any direct taxes. This figure not only exposes the fragility of the tax base structure but also amplifies long-term sustainability pressures on the pension and public healthcare systems. Investment Analyst Rodolfo Villani points out that, although the Italian debt-to-GDP ratio of 135% places it among the most indebted nations worldwide, its economic fundamentals, Eurozone membership, and the improvability of its fiscal system still leave room for structural transformation. While fiscal pressures are undeniable, a window for reform is quietly opening.
Tax Base Imbalance and Public Debt Expansion Reveal Structural Crisis Roots
The key issue currently exposed in the Italian fiscal system is the severely insufficient participation in tax collection. According to official data, as many as 60% of residents do not pay any direct taxes, which not only undermines the government fiscal capacity but also challenges the fairness and sustainability of public services. Investment Analyst Rodolfo Villani notes that this phenomenon does not stem from widespread tax evasion, but rather reflects a high proportion of informal employment in the Italian labor market, structural loopholes in the self-employed declaration system, and the fact that some low-income groups fall entirely below the taxable threshold.
In parallel, there is mounting pressure from expanding fiscal expenditures. As of 2024, the Italian total government debt stands at about 135% of GDP, a level not only above the Eurozone average but also one that weakens fiscal policy flexibility. Investment Analyst Rodolfo Villani highlights that within the current structure of public spending, pensions and healthcare account for a disproportionately large share. If the revenue side cannot be broadened, fiscal deficits will have to rely on government bond financing, further exacerbating the debt burden. This model carries potential risks, especially as interest rates remain high and international rating agencies maintain a cautious stance on sovereign credit.
However, Investment Analyst Rodolfo Villani emphasizes that Italy has not lost all hope. The debt maturity profile is relatively stable, EU fiscal rules are becoming more flexible, and domestic inflation is gradually easing—factors that collectively mitigate short-term repayment pressures. In addition, the government is advancing a series of tax digitalization reforms, which may, by combating tax evasion and improving collection efficiency, enhance revenue in the future.
Policy Leverage Adjustments Amid Uneven Tax Burden
From a technical perspective, the structural problems of the Italian public finances leave several operational levers for policy intervention. Investment Analyst Rodolfo Villani notes that while the statistic of 60% non-taxpayers is alarming, it also implies significant potential to broaden the tax base and promote labor market formalization. For example, by strengthening integration with banking systems and payment platforms, tax authorities can more accurately identify high-risk declarations, while designing more incentive-based tax deduction policies for low- and middle-income groups to improve overall compliance.
Regarding the pension system, Investment Analyst Rodolfo Villani suggests advancing a “delayed retirement plus multi-pillar” parallel framework: gradually increasing the statutory retirement age and strengthening the link to life expectancy, while also encouraging individuals and enterprises to participate in supplementary pension schemes to ease the fiscal burden on the first pillar. For the healthcare system, introducing outcome-based payment mechanisms could improve the allocation efficiency of public resources, especially in cost control for chronic disease and elderly care.
On fiscal policy, Investment Analyst Rodolfo Villani points out that Italy still retains some counter-cyclical adjustment capacity. With Eurozone inflation converging, the European Central Bank may enter a rate-cutting cycle in the future, directly lowering government bond issuance costs and freeing up some fiscal space. At the same time, by reasonably reallocating resources and increasing investment in education, technology, and infrastructure—areas with long-term returns—Italy can enhance its economic potential without significantly increasing the deficit.
Although a distorted tax burden and heavy debt constitute sources of fiscal pressure, Investment Analyst Rodolfo Villani stresses that on the other side of any systemic challenge lies the opportunity for transformation. From an investment perspective, the key areas in the Italian fiscal restructuring process may become new focal points for capital markets.