Taxes

Italians Get Sticker Shock at the Gas Pump


Italians Get Sticker Shock at the Gas Pump

Photograph by Damien Meyer/AFP/Getty Images

Enrico Cioni, a 36-year-old high school teacher who lives near Venice, bought himself a red Alfa Romeo MiTo in 2010. He figured the sporty little hatchback would be fun to drive and would save on gas. As Italy raised gas taxes 24 percent over the past year, his fuel spending soared to €200 ($267) a month. “I don’t have any alternative during the week, as I have to drive to reach the two schools where I teach,” Cioni says. “But I’ve cut the use of my MiTo during weekends to save money.”

Austerity measures introduced by Prime Minister Mario Monti’s government have pushed Italian gas prices to the highest in Europe, an average of €1.82 per liter, or $9.17 per gallon, with taxes accounting for about 54 percent of the total. It’s a profound shock for this country of car lovers, where the rate of vehicle ownership is among the highest in the world, and one that’s producing even more economic pain, as Italians curtail travel and shun new-car purchases.

After the latest gas-tax hike in December, auto sales fell 18 percent during January and February, and are expected to drop to their lowest level since 1985 this year. “We are hitting the bottom; it can’t be worse than this,” Fiat Chief Executive Sergio Marchionne said at the Geneva International Motor Show in March.

Promotor, an automotive research group, estimates that gasoline and diesel consumption fell 9.6 percent in Italy during the first two months of this year. “We’re seeing a decline in revenue of about 10 percent to 15 percent as people are not using their cars as much as before,” says Biagio Zagaria, who works at a gas station in central Milan. Carlo Pileri, head of consumer association ADOC, predicts that 7 in 10 Italians won’t travel during the Easter vacation, “mainly because of higher fuel prices and the cost of services.”

The Italians hit hardest by higher gas taxes are those like teacher Cioni—working people who live in areas poorly served by public transportation. “Wealthy drivers don’t feel the pain, they keep on driving their luxury cars,” says Gian Primo Quagliano, Promotor’s president. The rich have not escaped unscathed, though. The government has raised taxes on high-end cars, and tax inspectors have stepped up scrutiny of people who own expensive vehicles to determine whether they are accurately reporting their income.

One risk for the government is that Italians will curb their driving so much that gas-tax revenues will fall. It hasn’t happened yet; Promotor says that despite the decrease in consumption during January and February, total spending on gas and diesel was up 11 percent.

But many Italians are clearly angry. “The increasing gasoline price upset me and the people I know so much that I drive less—not because I can’t afford it, but in a sign of protest,” says Ippolito Alfieri, founder of a Milan advertising agency who drives a Volvo XC90. In the northern town of Reggio Emilia, a farmers’ group held a protest on March 24 in which it offered rides on donkeys as a tax-free means of transportation.

A few Italians, though, have managed to escape the higher fuel prices. Ivo, a 39-year-old from northern Italy who declined to give his last name, says he now buys gas for his Renault (RNO:FP) sedan from a black-market dealer who doesn’t pay taxes. “Gas prices are too high, so I found a way to pass less taxes and keep on driving,” he says.

The bottom line: As gasoline prices in Italy approach $10 a gallon thanks to higher taxes, Italians are responding by driving less.

With Tommaso Ebhardt, Chiara Remondini, and Serena Saitto
Matlack is a Paris correspondent for Bloomberg Businessweek.

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