As Italy’s Tax Gap Swells, Minister Calls Evasion “Terrorism” and Pushes New Crackdown

Italy’s tax evasion problem — long infamous across Europe — is worse than anyone thought. A new government report reviewed by Reuters reveals that unpaid taxes and social contributions surged to €102.5 billion ($119 billion) in 2022, up from €99 billion just a year earlier.

The finding reverses what had been hailed as a slow, steady improvement. Instead, the data show that the problem began climbing again in 2020 and has been accelerating ever since.

For Prime Minister Giorgia Meloni, the revelation is politically explosive. Her administration has argued that harsh enforcement and “anti-evasion crackdowns” were ineffective, opting instead to ease the rules — including raising the cash-payment limit from €1,000 to €5,000 and offering tax amnesties for debts dating back to 2023.

Critics say those changes effectively rewarded rule-breakers. Economists warn that the new leniency risks undoing a decade of progress toward cleaner, more transparent financial systems.

“Tax evasion is like terrorism,” said Deputy Economy Minister Maurizio Leo [Reuters] during a parliamentary debate in January 2024, as Italy stepped up online tracking of undeclared income.

The updated figures come from the national statistics agency ISTAT, which overhauled its methodology in 2024. The revision uncovered deeper non-compliance than previously reported. Between 2018 and 2022, Italy’s total improvement in curbing evasion was just €5.9 billion — not the €26 billion claimed in earlier reports

The numbers matter not only for political optics but also for EU fiscal negotiations. Rome is under pressure from Brussels to reduce its debt-to-GDP ratio, which still hovers around 137%. The more money lost to evasion, the harder that becomes.

Across Europe, Italy remains a standout for its “shadow economy.” Eurostat data shows Italians use cash more frequently than any other major eurozone nation, despite incentives to adopt traceable digital payments. Spain, France, and Germany have all reduced their shadow-sector shares since the pandemic, while Italy’s has remained stubbornly high.

Meloni’s government insists that easing penalties and encouraging voluntary compliance will eventually boost collections. But early indicators suggest otherwise. A 2025 study from the University of Bologna found that voluntary settlement programs recoup, on average, only 35–40% of the taxes owed.

The government’s 2026 budget includes another broad tax amnesty, allowing individuals and businesses to pay outstanding liabilities without penalties or interest — a move the European Commission has already flagged as “fiscally risky.”

Still, Italy’s challenge runs deeper than political philosophy. It’s cultural, structural, and decades in the making. From cash-heavy tradesmen in Naples to under-declared hospitality revenue in Rome, evasion has become a habit that reforms rarely break for long.

Italy’s new €100-billion tax gap isn’t just a financial statistic — it’s a warning sign. The country that once promised to close its shadow economy by modernizing enforcement now faces a regression that could strain its budget, shake investor confidence, and reignite EU tensions over fiscal credibility.

Unless new measures reverse the trend, Italy’s shadow economy may once again cast a long shadow over Europe’s fourth-largest economy.