Italy to tap undeclared Gold to plug budget hole

The Italian government needs money and wants to tap private gold holdings to get it.

Many Italians own undocumented gold. Italian Prime Minister Giorgia Meloni’s government has come up with a scheme to entice people to declare their gold holdings, have them appraised, and then pay a 12.5 percent tax on their value.

Many Italian families own gold with no proof of origin. As the Financial Times explained, much of it was inherited from parents and grandparents who accumulated it to shield themselves from the relentless devaluation of the lira.

So, why would anybody admit to owning gold that the government doesn’t know about if they’re going to then pay tax for it?

Under the current law, it is prohibitive to sell undocumented gold through legal channels because the government levies a 26 percent tax on the total value of the sale if the owner lacks any documentation to prove the original purchase price. Government officials hope that the opportunity to pay a lower tax by declaring the gold now will incentivize people to declare their gold today, since they would then only have to pay the 26 percent capital gains tax on the profit from the sale instead of the entire amount.

One official who backs the idea said the program would “encourage the monetization of gold held by Italians.”

“You can reduce the tax burden for a future sale with this revaluation,” Sergio Finulli, a chartered accountant at Milan-based Sofiae, told the Times. “It makes sense. People have to think about it — and the cost.”  

Some officials have estimated the scheme could raise as much as €2 billion.

However, others doubt many people will line up for the program.

Why would you?

If Italians want to sell their gold outside of official channels, they will undoubtedly be able to find a buyer. After all, gold is money, and everybody understands its intrinsic value. Nobody in their right mind is going to declare gold and pay a tax when they can easily just sell it in the grey market and avoid taxation altogether.

It remains unclear exactly how much undocumented gold Italians hold, but they have a longstanding love affair with the yellow metal. In his 2018 book “Oro,” former Bank of Italy Deputy Governor Salvatore Rossi wrote, “Gold is like the family silverware, it's like grandpa's precious watch, it's the last resort in times of crisis, any crisis that undermines international confidence in the country."

The country’s central bank ranks third in total gold reserves with 2,452 tonnes. With the price of gold surging, the country is enjoying a windfall from its gold holdings.

While it remains unclear whether the Italian government can help fill its budget hole by monetizing undeclared gold, the scheme underscores an important point. Gold is a fantastic store of wealth and an economic security blanket in times of financial stress. The government wants to target undeclared gold as a revenue source for the same reason that people held on to it in the first place. In a world of ever-devaluing fiat money, gold holds its value, preserves wealth, and is available as a financial backstop in times of trouble.

People would be wise to keep their secret gold stashes secret. They never know when they might need it, and there is no reason to think they won’t be able to sell even if they want to avoid taxes through official channels.

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