Demonstrating that nothing is sacrosanct in Italy's debt crisis, Mario Monti's government of technocrats is taking on the powerful Catholic Church in a bold move to end tax breaks on properties used for commercial activities.
Officials confirmed that the Prime Minister was expected to inform Italy's leading clerics of his decision at a ceremony in Rome on Thursday marking the 83rd anniversary of the Lateran pacts – signed on the Italian side by Benito Mussolini – that established political and financial relations with the Vatican state.
The controversial proposal, to be presented to Parliament, was studiously avoided by the previous centre-right government under Silvio Berlusconi, who was anxious not to antagonize the influential Church establishment already critical of his personal sex scandals and flamboyant lifestyle.
Mr. Monti, a regular churchgoer, and some of his technocratic ministers were widely seen at the time of their appointment last November as the government closest to the Church for some 20 years. Officials believe that "credibility" and the Church's willingness to share the "sacrifices" of Italians will open the way to co-operation from the country's bishops.
Just how much property tax the Church would have to pay is unclear. By some estimates the Italian Church and the Vatican together own 20 per cent of real estate in Italy. Its more than 100,000 properties include almost 9,000 schools, 2,300 museums and libraries, 4,700 clinics and hospitals, and numerous hotels, stores and travel agencies.
Under the present law, the Church is exempt from property tax where buildings also perform a religious function, for example a hospital or hostel that contains a chapel. Mr. Monti's proposal would tax all properties with a commercial function.
Mr. Monti is backed by Brussels, where Joaquín Almunia, the European Union's competition commissioner, has responded to challenges by Italy's small Radical party by launching infringement procedures against Italy, arguing that tax breaks for the Church represent unfair competition.
Mr. Almunia's office welcomed the decision after being informed on Wednesday by Mr. Monti, himself a former EU competition commissioner. The Church would also benefit from an eventual dropping of the infringement procedures, which could force it to pay several years of arrears, estimated by analysts to amount to more than €2-billion ($2.62-billion).
According to Avvenire, a newspaper representing Italy's bishops, the proposed law would cost the Church €100-million a year. Anci, the association of local authorities, estimates the cost at up to €600-million, while other newspapers quoted an unofficial study by the state tax collection agency as putting the figure at €2-billion.
"It is just, fair and desirable. The difficult times and Monti are just the right mix to push this through," said Nicola Marinelli of Glendevon King Asset Management in London.
Stressing that the "lack of transparency" by the Church on its assets made it hard to judge the potential revenue impact for the state, Mr. Marinelli said Mr. Monti was sending an important signal in his efforts to regain investors' confidence.
The move on the Church is a further sign that Mr. Monti is ready to take on powerful lobbies in cases the pragmatic Prime Minister is confident of winning, with popular support. This week the government upset the defence industry by cancelling orders for 41 Lockheed Martin Joint Strike Fighters at a saving of more than €4-billion, and blocked Rome's expensive bid to host the 2020 Olympic Games.
The tax imposition comes at a difficult time for the Vatican, whose finances are also labouring under recession and whose clerical managers are under fire from claims of scandal and corruption.
Osservatore Romano, the Vatican newspaper, lashed out on Wednesday at what it called irresponsible and undignified "wolves" for leaking internal documents alleging corruption and a cover-up in what the Italian media has dubbed "Vatileaks," which have further damaged the Church's reputation.
The response by Italy's Church hierarchy so far has been cautious, saying it reserved judgment until it saw the full text of the legislation, while noting the social benefits from "non-profit" activities.
Bishops' statements earlier this year indicated their understanding that change was due, while tax evasion – estimated to cost the Italian state more than €100-billion a year – was denounced as a sin.