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When Italians pay the rent every month, many go to the ATM and take out wads of cash, which most landlords prefer over checks. Newly appointed Prime Minister Mario Monti wants landlords, tenants, and Italians of all sorts to stop using so much cash, a habit that makes it very easy to evade the taxes needed to shore up Italy’s dire finances. So on Dec. 4, Monti banned cash payments of over €1,000 ($1,340). As part of a wide-ranging emergency decree, the cash cap takes effect immediately, even though Parliament must formally vote on it later on.
Monti must now deal with the wrath of millions of Italians who use euro notes to renovate their homes, host wedding receptions, and pay for family vacations. Italy loses more than €100 billion in unpaid taxes every year. It also loses €10 billion every year from increased security and labor needed to process cash transactions, according to ABI, the country’s banking association. “What we need,” Monti told reporters on Dec. 5, “is a revolution in Italians’ thinking.” The same day he was booed by a minority in Parliament after he mentioned the cash limit.
Italians are the euro region’s least indebted consumers and among its biggest savers, according to Eurostat data. This frugality is linked to distrust of noncash methods of payment. Italian credit-card holders make only 26 transactions on their plastic each year, on average—five times less than in the U.K., according to the Bank of Italy.
It’s not just individuals who stick to cash. Many small and medium-size companies pay salaries in bank notes, giving employees a chance to report lower income, as a Finance Ministry report pointed out in 2010. The companies can also avoid paying pensions, health care, and other charges by not paying employees on the books.
With Italy desperate to reduce its €1.9 trillion debt, every bit of added revenue helps. Yet retailers are resisting the cap on cash, saying they don’t want to pay charges of 3 percent to 4 percent on credit-card transactions. Some politicians say imposing one form of payment over another by law, instead of just encouraging it, violates citizens’ rights. “There’s a real danger of crossing over into a fiscal police state,” former Prime Minister Silvio Berlusconi said at a political convention on Nov. 27 in Verona, two weeks after the debt crisis toppled his government.
Supporters of the cash cap retort that it will reduce other types of crime, including the money laundering practiced by the mafia. Holdups may also decline if retirees stop their dangerous habit of withdrawing their monthly pensions in cash at local banks and post offices. Almost half the bank robberies in the EU in 2009 occurred in Italy, according to a report by banking union FIBA, an association of 90,000 bank workers. The union concluded that thieves were tempted by the large amounts of cash requested by customers.
The bottom line: Italian leader Mario Monti has pushed through a limit on cash transactions that may recover at least €100 billion in lost tax revenues.