Proposed Windfall Tax on Banks Marks a Misstep for Italy’s Meloni

Italy elected a conservative for this? Prime Minister Meloni suffered a major blow to her image as a fiscally responsible leader when her deputy prime minister, Matteo Salvini, made a slapdash announcement of a 40 percent windfall profit tax on banks. The move roiled the markets, and Citi estimated that the proposed levy would affect as much as 0.5 percent of total bank assets, triggering losses that could run into the billions.By falling into a Liz Truss-like morass, Ms. Meloni has unnecessarily called into question her stewardship of the Italian economy — and sparked doubts about her fealty to conservative principles.Mr. Salvini, who surreptitiously unveiled this voltafaccia late Monday night — with neither the prime minister nor the finance minister, Giancarlo Giorgetti, present — offered little in the way of specifics. Mr. Giorgetti had repeatedly nixed such a tax on banks’ interest income.By Tuesday, though, the finance ministry forcefully intervened and stated that the tax would be capped at 0.1 percent of bank assets. Moreover, Parliament must approve the final version. Bank stocks have rebounded.Yet the buck, as it were, stops with Ms. Meloni. It appears that this miscue was the brainchild of the ever-ambitious Mr. Salvini, and Ms. Meloni failed to rein in her junior partner.The prime minister’s earlier rejection of a minimum income proposal, the so-called citizens’ income, and proposals to set a new minimum wage may have played a part in this debacle. Anti-banking populist sentiment, too, likely contributed to this half-hearted decision.Ms. Meloni “felt weakened by accusations that she doesn’t care about the weaker households,” the co-founder of Policy Sonar, a Rome-based political risk consultancy, Francesco Galietti, told the Financial Times. “When she scrapped the universal basic income, she was accused of not having a heart and not caring about the poor.”Such arguments have haunted conservatives since the days of Edmund Burke. At the beginning of the 21st century, Karl Rove coined the term “compassionate conservative” to counter charges of an ideology deemed to be the spawn of Mr. Scrooge.Yet the Meloni government’s recent imbroglio appears to be indicative of a political miscalculation rather than any outright abandonment of conservative economic principles.Both the Movimento Cinque Stelle, or Five-Star Movement, and the liberal Partito Democratico applauded the bank tax scheme, highlighting the populist tilt that suffuses much of Western Europe.Nevertheless, sound governance isn’t a popularity contest. Yes, politicians live and die by polls. However, following the shifting winds of public opinion will ultimately prove to be detrimental to a polity’s vibrancy and fiscal well-being.Like Mayor La Guardia, who acknowledged, “When I make a mistake, it’s a beaut,” Ms. Meloni’s faux pas is best acknowledged with contrition.It also serves as a reminder that, as the head of a sometimes fractious conservative coalition, she will need to ride herd on slipshod, one-off schemes that run contrary to her bedrock conservative principles. That will require her to restrain the worst impulses of some of her more volatile partners, not least Mr. Salvini, who himself aspired to the role of premier.Ms. Meloni will now be tested as never before. Her coalition’s integrity — and Italy’s resurgence — is likely to hinge on her determination to stay on a pragmatic economic course.

Proposed Windfall Tax on Banks Marks a Misstep for Italy’s Meloni

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