LADIES AND GENTLEMEN, I bring you the latest news from the wild tragicomic opera otherwise known as “The Italian government.” On Thursday, Italy’s national statistics office (ISTAT), reported that 2014’s GDP is set to grow by as much as 2 percent this year after the addition of “drug trafficking, prostitution and smuggling services (cigarettes or alcohol)” into the calculations. Earlier figures will be retroactively adjusted to reflect the new methodology.
“The measurements of these activities,” admits the statistics office, “will be very difficult for the obvious reason that they have to remain undetectable.”
Smart asses, these number people.
Wot it says on the tin
Evidently, undetectable is not negligible– the Bank of Italy estimates that these illegal activities account for 10.9% of the GDP. Guys, that’s a lot of crime. Already included in its GDP are the “gray area” businesses that do not pay taxes – when last calculated in 2008, the sector was valued at 16.3% to 17.5% of the Italian economy. In Spain, this figure is 19.2%, and the inclusion of illegal activity revenue this year is expected to add a further €10 billion to its revenue. In Britain, the contribution to 2014’s GDP is £10 billion.
In other words, this curious GDP-boosting strategy will be applied EU-wide. The new methodology, introduced in January this year, obliges member-states to include all income-producing industries in their GDP calculations, research and development and arms included, but most interestingly – the ones involving debauchery and crime. Approximate growth estimates by Eurostat, the EU’s statistical centre, range from 4-5% for Sweden and Finland to around 1-2% for Italy – an increase that comes as manna itself for Italy’s newly elected Prime Minister Matteo Renzi.
Renzi has proposed an ambitious economic reform program, committing to reducing the deficit to less than 2.6% of GDP this year — after 4 recessions in the last 13 years have left the GDP battered. At €1.56 trillion (2.3 trillion USD), it is 2% lower than it stood in 2001. Despite being Europe’s third-largest economy, Italy has been one of the worst hit during the EU’s financial difficulties. Unemployment reached a record high of 13% this February, the country has the second-largest public debt as a percentage of GDP in the Eurozone, and strikes and street protests have become unstartling news for myself and others living here.
“The last few years,” says Gianni Toniolo, Professor of Economics at Duke University and Libera Universita’ delle Scienze Sociali in Rome, “represent the worst crisis in the country’s history.”
The new projected growth estimate could be appreciably higher than the previous government estimate of 1.3% and will, from a certain cynical perspective, allowing Renzi some leeway to spend without breaching the deficit, i.e. making use of technicalities to placate the public and observe EU regulations on indebtedness (a deficit of not more than 3% of GDP).
Before you go “Ha ha, those Europeans,” it’s really not all jokes and blue skies. Upon hearing the news, my first reaction was to wonder: is this little more than statistical reclassification and convenient inflation of figures? Given that organised prostitution and drugs are illegal and untaxed industries, the growth will have little real effect on economies even as GDPs and fiscal indicators (debt-to-GDP ratio and the deficit-to-GDP ratio) increase prettily on paper. While countries will undoubtedly enjoy having GDPs perked up by a few percentage points, it’s unlikely that they’ll be similarly jaunty when this rise affects their slice of the €135 billion EU budget. While countries such as the Netherlands will remain unaffected given that prostitution and the consumption of drugs are legal and already included in their GDP, others like Italy will see their shares slashed due to increased GDPs and having to make greater contributions
Given this, it does lead one to a new thought – just as Colorado’s move to extract marijuana sales from the murky pot of America’s estimated $2 trillion underground economy has resulted a lowered crime rate and millions in tax revenue, could revealing the (eminently taxable) scope of the illegal industries possibly work as an opening salvo in a European quest to legalize them across the board?
Small waves in this direction have already been witnessed in Italy, with Turin becoming the first major city in Italy to approve a motion to legalize the prescription of medical marijuana earlier this year. If passed, the mandate would overrule the severe 2006 Fini-Giovanardi law that equated marijuana to heroin and cocaine, and created similar penalties for both (Er– whaaat?); and could set a path toward the legalization of marijuana for recreational use.
“We want to put an end to the political prohibition which has only served to give illegal traffickers hundreds of billions of euros, and thousands of citizens a criminal record,” says Marco Grimaldi, from the democratic socialist party – Sinistra, Ecologia, Liberta (Left, Ecology, Freedom) – that proposed the law.
There have also been rumbles about setting clear guidelines on paying taxes and creating pensions for legal and independent prostitutes who say that they’ve experienced everything from having their tax payments refused, being irregularly taxed based on inaccurate estimates or even, ridiculously, slapped with fines for tax evasion despite having no legal way of categorizing their work. The legal prostitution industry is worth €5.6 billion, but still has no formal tax structure, while organized brothels (which became illegal in 1958) exist in the shadows yet remain unregulated, untaxed and unpoliced for safety or health. There are periodic calls to bring them back, and proposals to create red light districts and re-legalise street prostitution, made illegal in 2008.
So. Decriminalising these industries- a wise move that will increase desperately needed tax revenue? Or is it simply, as they also say in Italy (but longer because of the bureaucracy and drama), arrampicarsi sugli specchi (grasping at straws)?
Whatever it is, or if it’s even anything beyond idle speculation — Sex, Drugs, Booze and Accounting, it’s pretty compelling imagery.
Graphics by Elizabeth Liew