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Saturday, March 27, 2021
LEARN MORE ABOUT YOUR SPESE DEDUCIBILI FROM YOUR DETRAIBIL!
Friday, March 26, 2021
Red, Red, Wine, stay cose to me...!
As Lazio is in 'zona rossa' until Easter 2021, I can only think of one song title which keeps filling my mind as I relive the experience of DAD (didattica a distanza - online schooling) once again:
Red, Red, Wineeeeeeee, stay close to meeeeeee!
Between the sips, I wanted to share with you a few nuggets of information from the investment world in this newsletter.
I was on a zoom conference call with
Jupiter Asset Managers in London last week, and they were providing an
update on financial matters, economic recovery and where they see the
green shoots of recovery from Covid, as well as much more. As always, I
am less interested in the technical talk and more interested in
understanding the human story which can help us to make sense of what is
going on and more importantly give us confidence that the people
managing our money have their fingers on the pulse.
So, here are a few things I learned and which might interest you as well.
VACCINES AND HOLIDAYS
The first vaccine was approved on the
10th November 2020 and, apart from the slow uptake, and more recent
issues surrounding the AstraZeneca vaccine, the logic is that the mass
roll out of vaccinations will quite quickly relieve health services
around the world and free up the space it needs to start economies
functioning normally again. This will in turn get people back to work!
The UK, interestingly, is well ahead with the vaccine rollout and should
be one of the first major economies to open up fully again.
Now, you may have an opinion on how people may react once things start opening up again, but we also have an example of just what could happen when things return to normal and we don't have to look any further than the origin: China.
China is effectively Covid free now, or at least they are managing to control any outbreaks through effective mass testing and isolation. From an economic standpoint they have rebounded well, posting growth of 2.3% in 2020 and up 6.5% in the last quarter, and it is worth remembering that they arguably had the most severely imposed and longest lockdown of any country. The recovery figures are impressive and you may wish to take them with as pinch of salt, but if they prove to be true then it would appear that economies can get back on track quite quickly. The question is whether EU countries will also follow a similar trend. I suspect after some initial hesitation, that human behaviour will quite quickly return to pre-Covid patterns. I don't know about you, but I can't wait to attend a really good music event again or have a great night out with friends.
Now, you may have an opinion on how people may react once things start opening up again, but we also have an example of just what could happen when things return to normal and we don't have to look any further than the origin: China.
China is effectively Covid free now, or at least they are managing to control any outbreaks through effective mass testing and isolation. From an economic standpoint they have rebounded well, posting growth of 2.3% in 2020 and up 6.5% in the last quarter, and it is worth remembering that they arguably had the most severely imposed and longest lockdown of any country. The recovery figures are impressive and you may wish to take them with as pinch of salt, but if they prove to be true then it would appear that economies can get back on track quite quickly. The question is whether EU countries will also follow a similar trend. I suspect after some initial hesitation, that human behaviour will quite quickly return to pre-Covid patterns. I don't know about you, but I can't wait to attend a really good music event again or have a great night out with friends.
PENT UP CONSUMER BOOM
One side effect of Covid lockdown is that many people are 'stuffati'
to have been at home for so long, and in many cases been unable to
spend money that they have been continuing to earn/save throughout. This
could unleash a potential consumer boom: splashing the cash, once
restrictions lift. Think holidays, travel and experience based
activities.
As an example of this pent up demand we only need to look at the cruise ship sector. I don't think there is a better example of a sector which has been brought to its knees than the cruise holiday industry. Many of the ships can no longer afford the mooring fees in large docks and so, without any business, have moored offshore. Off the south coast of the UK there are so many now, that they have become a tourist attraction in themselves, even inspiring a local entrepreneurial type to start tours to see the cruise ships up close ... and which are proving to be quite popular, see link below (no comment!)
As an example of this pent up demand we only need to look at the cruise ship sector. I don't think there is a better example of a sector which has been brought to its knees than the cruise holiday industry. Many of the ships can no longer afford the mooring fees in large docks and so, without any business, have moored offshore. Off the south coast of the UK there are so many now, that they have become a tourist attraction in themselves, even inspiring a local entrepreneurial type to start tours to see the cruise ships up close ... and which are proving to be quite popular, see link below (no comment!)
Similarly, in Australia, enterprising airlines have been running flights for those people desperately missing airline travel. The difference with these flights is that they take off and land in the same destination, adhere to strict Covid health guidelines and are relatively short in duration. However, these are all temporary measures to keep money coming in and businesses from going bust. What they are really waiting for is things to return to normal.
From an investment point of view this presents opportunity! It provides opportunities to purchase into businesses which have been severely damaged due to Covid but will benefit from a recovery: Rolls Royce for new aircraft engines and maintenance, Easyjet which has been working on the bare minimum of service, cruise liner companies themselves, the entertainment, music and leisure industries. Essentially, anything outside technology, communications, healthcare and utilities has performed pretty badly since March 2020.
As the spread and effect of Covid is brought under control, so will prospects for consumer based companies increase. In fact, most of the investment management firms that we work with have already started to take positions in companies which will benefit from a post Covid consumer boom.
WHEN?
If only I had a crystal ball! The
biggest question with investing is when will it happen? That is
something we cannot foresee right now, but it will happen. A recovery
may present itself in different ways around the world. Human nature is
such that different demographic groups may respond within different
timescales. Those affected more greatly by Covid will obviously be more
cautious moving forward. The younger generation are likely to respond
more quickly. The art of the investment manager will be to get behind
the right companies that will benefit the most at the right time.
CAUTIONARY NOTE: There
is also a flip side to every coin and those sectors which have
performed incredibly well recently: Tesla, Facebook, Amazon, Alphabet,
Netflix, Google (FAANGs) for example, may see their stock prices slow or
even fall back. These stocks, in particular, may also be affected more
by Government regulatory policy in the coming years, than a return to
pre-Covid activity levels.
ENVIRONMENT / SUTAINABLE / GOVERNANCE INVESTING (ESG)
You may remember that in 2019, I
returned from our Annual Conference and wrote a newsletter about investment
companies jumping on the ESG bandwagon. This seems to have continued
unabated and now it would seem that virtually all new investment funds
have some kind of Eco/ESG message.
The truth is that Eco/ESG related investing is a bit of a double edged sword. On one hand the financial and corporate world seems to be finally taking its responsibilities seriously, on the other hand, just how clear the lines are is another discussion altogether. I think that the lines around pure Eco/ESG investing are going to become more blurred in the coming years as mainstream players, laden with cash, are also going to be pouring into the sector. It will likely lose its specialist sector characteristics and start to look like the mainstream. As a simple example, we can use the oil companies, who we know have a terrible global carbon footprint, but who are also starting to become some of the biggest investors in sustainable energy: wind, solar etc. Another example that springs to mind is IKEA. I don't credit IKEA with high points in any of the ESG categories (maybe Governance!), but they are now investing heavily in a reclamation and recycling programme of old furniture. Could this make IKEA a good ESG investment for the future?
Where it gets complicated for investors is when you have to choose from the information available to you. For help there are always companies, institutions and rating agencies who will score ESG investments and companies for us. The only problem with these is that they use different metrics and it is hard to compare like with like.
MSCI (Morgan Stanley Capital International), ESG score Tesla one of the highest rated ethical companies for its rapid move into electrification of the automotive industry. FTSE, on the other hand, give it one of the worst ESG scores due to the fact that they need to use huge quantities of rare metals to produce the batteries, they have bad corporate governance and their profits are non-existent. So who are we to believe? My advice is to leave it the experts! We recommend funds like Jupiter Ecology fund, Janus Henderson Ethical fund, Liontrust Sustainable Future, and Regnan investor funds to clients due to their quality and due diligence in this sector.
The truth is that Eco/ESG related investing is a bit of a double edged sword. On one hand the financial and corporate world seems to be finally taking its responsibilities seriously, on the other hand, just how clear the lines are is another discussion altogether. I think that the lines around pure Eco/ESG investing are going to become more blurred in the coming years as mainstream players, laden with cash, are also going to be pouring into the sector. It will likely lose its specialist sector characteristics and start to look like the mainstream. As a simple example, we can use the oil companies, who we know have a terrible global carbon footprint, but who are also starting to become some of the biggest investors in sustainable energy: wind, solar etc. Another example that springs to mind is IKEA. I don't credit IKEA with high points in any of the ESG categories (maybe Governance!), but they are now investing heavily in a reclamation and recycling programme of old furniture. Could this make IKEA a good ESG investment for the future?
Where it gets complicated for investors is when you have to choose from the information available to you. For help there are always companies, institutions and rating agencies who will score ESG investments and companies for us. The only problem with these is that they use different metrics and it is hard to compare like with like.
MSCI (Morgan Stanley Capital International), ESG score Tesla one of the highest rated ethical companies for its rapid move into electrification of the automotive industry. FTSE, on the other hand, give it one of the worst ESG scores due to the fact that they need to use huge quantities of rare metals to produce the batteries, they have bad corporate governance and their profits are non-existent. So who are we to believe? My advice is to leave it the experts! We recommend funds like Jupiter Ecology fund, Janus Henderson Ethical fund, Liontrust Sustainable Future, and Regnan investor funds to clients due to their quality and due diligence in this sector.
INFLATION
There is a lot of talk about inflation
rising to significant levels when economies return back to normal.
Whilst this is very likely in very elastic economies like the USA, it is
likely to be less significant in the Eurozone, although it cannot be
discounted altogether.
Price inflation normally follows wage inflation and there appears to be little chance of the opportunities in employment changing significantly in Europe even when Covid passes. The under 25 year old unemployment rate in Italy is now at approximately 30%. The depressed employment market in Europe is, in general, more to do with endemic long term demographic and political problems than anything caused by Covid. Covid has just exacerbated the problem. That doesn't mean to say that the situation cannot be changed for the better, but the EU will have to go big and bold ... don't hold your breath!
Despite the EU being unlikely to make significant changes, there is a real threat of increasing prices for many goods and services, especially where they are imported from abroad. The world of trade is more interconnected than ever and inflating prices in one area of the world could very quickly seep through to other parts of the globe. How do we counter this effect with our money? Don't sit on too much cash and invest your money for the future! Don't think that you can deal with any inflationary issues when they happen. By that time it is too late and the cat is out of the bag. If you are concerned about protecting your lifestyle long term, you need to make your money start working for you straight away. You just want to preserve your ability to take regular holidays, pay the increasing gas bill, or even ensure that you have sufficient funds in old age to pay for medical care. Whatever the reason, get ahead of inflation and don't play catch up when it is too late!
Price inflation normally follows wage inflation and there appears to be little chance of the opportunities in employment changing significantly in Europe even when Covid passes. The under 25 year old unemployment rate in Italy is now at approximately 30%. The depressed employment market in Europe is, in general, more to do with endemic long term demographic and political problems than anything caused by Covid. Covid has just exacerbated the problem. That doesn't mean to say that the situation cannot be changed for the better, but the EU will have to go big and bold ... don't hold your breath!
Despite the EU being unlikely to make significant changes, there is a real threat of increasing prices for many goods and services, especially where they are imported from abroad. The world of trade is more interconnected than ever and inflating prices in one area of the world could very quickly seep through to other parts of the globe. How do we counter this effect with our money? Don't sit on too much cash and invest your money for the future! Don't think that you can deal with any inflationary issues when they happen. By that time it is too late and the cat is out of the bag. If you are concerned about protecting your lifestyle long term, you need to make your money start working for you straight away. You just want to preserve your ability to take regular holidays, pay the increasing gas bill, or even ensure that you have sufficient funds in old age to pay for medical care. Whatever the reason, get ahead of inflation and don't play catch up when it is too late!
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Monday, February 22, 2021
Bitcoin is exploding again!
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Sunday, February 21, 2021
Enter the Draghi!
There is nothing like a change of
administration in Italy to get my fingers tapping away on my keyboard
again. Almost as soon as Mario Draghi was announced as the new head of
the technocrat government in Italy, then there was plenty to write about
again.
So, what is on my mind so soon after my last blog If you haven't guessed already it's the subject of tax again.
So, what is on my mind so soon after my last blog If you haven't guessed already it's the subject of tax again.
Reforms afoot?
I
think for about as long as I can remember I have been writing about
proposed tax reforms in Italy. I remember the tax reforms which never
really saw the light of day from 2014 to 2016 when Matteo Renzi was PM
of Italy. Equally I remember the flat tax plans of Salvini during his 15
months in power, which once again went nowhere.
So, can Mario Draghi push through some well needed reforms in one of the world's most complicated tax codes, systems of deductions, detractions and incentives? Let's have a look at what is currently being discussed.
Tax free allowance in Italy?
Firstly, Draghi and his team want to re-structure the income tax code in Italy to make it more favourable for the mid-low income earners. They purportedly want to keep the current system of progressive tax rates (because it is fairer) but modify them to a) assist lower-mid income earners and b) also provide stimulus to workers so businesses can grow and flourish early on rather than, as is presently the case, taxing income too high, too quickly.
The talk is that Draghi is very keen on the German model of progressive tax rates which can be seen below:
Taxable Income for single taxpayers:
Income Band Tax Rate
€0 to €9408 0%
€9409 to €57051 14% - 42%*
€57052 to €270500 42%
€270502+ 45%
So, can Mario Draghi push through some well needed reforms in one of the world's most complicated tax codes, systems of deductions, detractions and incentives? Let's have a look at what is currently being discussed.
Tax free allowance in Italy?
Firstly, Draghi and his team want to re-structure the income tax code in Italy to make it more favourable for the mid-low income earners. They purportedly want to keep the current system of progressive tax rates (because it is fairer) but modify them to a) assist lower-mid income earners and b) also provide stimulus to workers so businesses can grow and flourish early on rather than, as is presently the case, taxing income too high, too quickly.
The talk is that Draghi is very keen on the German model of progressive tax rates which can be seen below:
Taxable Income for single taxpayers:
Income Band Tax Rate
€0 to €9408 0%
€9409 to €57051 14% - 42%*
€57052 to €270500 42%
€270502+ 45%
* Your rate of tax in this band is determined based on your total income.
° Married and civil partnership couples are assessed together and the band levels above are doubled (not the tax rates!)
You
will notice that the German progressive tax rates have a nil rate band,
otherwise called a tax allowance, similar in structure to many other
progressive tax regimes, e.g. the UK and USA.
The nil rate band is particularly popular because it means that the first 'x' amount of income is not taxed for anyone. Presently, Italy has a system of tax credits, which mimic the tax allowance for some people, but mean that income is still taxed, even at a lower level, and then a tax credit needs to be applied for each year.
The nil rate band is particularly popular because it means that the first 'x' amount of income is not taxed for anyone. Presently, Italy has a system of tax credits, which mimic the tax allowance for some people, but mean that income is still taxed, even at a lower level, and then a tax credit needs to be applied for each year.
Funding the shortfall
The
big question is how does the Italian government fund this tax change,
because it is a tax reduction for most people. They will purportedly
do it in 3 ways:
SIMPLIFYING A COMPLEX SYSTEM
It
is assumed that the currently complex system of deductions, detractions
and bonuses/credits etc will be overhauled and that a number of them
will be pulled altogether or simplified. Personally, I am in favour of
simplification. The current system is far too complicated and I often
find that people have not applied for, or haven't deducted expenses
for certain benefits to which they are entitled, but no one has informed
them (a.k.a. their commercialista). Hence a simplified tax code would
likely benefit more people who need it.
PROPERTY TAXES
This
is always a sensitive subject for political parties in Italy but one of
Draghi's ideas is to reintroduce the idea of a tax on the Prima Casa:
IMU. I am sceptical as to whether he would get that through because it
is such a political hot potato in Italy, but it is being thrown about as
an option. However, the other idea is to review and revise the system
of valore catastale. This value, which is used for a number of
taxes (see below), has not been revised for many years and so is usually
a value which can diverge widely from the true market value of a
property.
A revision to bring the valore catastale and the market value of a property more in line with each other would be a clear increase in taxation and would increase the following imposte:
A revision to bring the valore catastale and the market value of a property more in line with each other would be a clear increase in taxation and would increase the following imposte:
Successione:
The tax calculated on a property in Italy on death (succession or inheritance).
Donazione:
Donazione:
Calculated in the same way as the above, but rather
than the tax paid on death, it is paid when a property is donated during the life of an individual.
Imposta di Registro:
Imposta di Registro:
The tax paid to register the atto when a property is bought.
Imposta Ipotecaria:
Imposta Ipotecaria:
Tax paid when a property is re-registered.
Imposta Catastale:
Imposta Catastale:
Similar to the imposta ipotecaria for a transfer of a property into another's ownership.
(All the above are calculated using the valore catastale as their base value, with various coefficients applied to arrive at the correct taxation).
(All the above are calculated using the valore catastale as their base value, with various coefficients applied to arrive at the correct taxation).
Most of the taxes listed above are for one off events, such as purchase or re-registration of a property. The valore catastale would also affect the ongoing taxes for property owners which are payable each year, namely:
TARI: The refuse tax
IMU: The tax on second properties (currently!)
FLAT TAX REGIMES
One
last tax reform could be the possibility of bringing a stop to various
flat tax regimes. Currently, Italy offers a range of flat tax offers to
various categories of people. The ones that mainly affect my clients
are:
1. The regime forfettario flat tax regime of 15% taxation on incomes up to €65000pa.
2. The 7% pensionati flat tax is the offer of a 7% taxation for a period of 10 years for anyone who is taking a pension income and takes up residence in a southern state in a comune with less than 20000 registered abitanti.
3. The €100000 per annum for 15 years, flat tax regime, to attract the wealthy to transfer their residency in Italy.
If the noises that are currently being heard are correct, then Mario Draghi is not a great fan of flat tax regimes and he may look to overhaul the system with these in mind.
1. The regime forfettario flat tax regime of 15% taxation on incomes up to €65000pa.
2. The 7% pensionati flat tax is the offer of a 7% taxation for a period of 10 years for anyone who is taking a pension income and takes up residence in a southern state in a comune with less than 20000 registered abitanti.
3. The €100000 per annum for 15 years, flat tax regime, to attract the wealthy to transfer their residency in Italy.
If the noises that are currently being heard are correct, then Mario Draghi is not a great fan of flat tax regimes and he may look to overhaul the system with these in mind.
CLAMPING DOWN ON TAX EVASION
The
third, and more important way that Draghi is proposing to raise tax
revenue, without raising taxes on the most needy, is to clamp down on
tax evasion.
The Common Reporting Standard
Apart
from the usual issue of payment in cash in Italy which is beyond the
scope of my E-zine, the main thing to note about the tracking down of
undisclosed financial information, particularly abroad, is the
2016 Common Reporting Standard. This is a multilateral agreement between
almost all countries in the world, to share financial information with
one another based on the residency of any individual and not the
location where an asset is held.
In Italy, it is evident that it is in full force and I have seen, on a number of occasions, that it works seamlessly.
Not
a week goes by when I am not contacted by someone who has assets
reported incorrectly or have failed to declare them in Italy. In many
cases it is done unintentionally, but the tax code does not make
exceptions for the unintentional or 'I didn't know I had to do it'. The
question I am asked is 'will they be able to find out?' and my response is always 'I
think we can assume that they know, and if they haven't contacted you
then it is their choice not to do so rather than a question of them not
knowing'.
Low hanging fruit
Given
that Draghi is stating that he wants to go after undeclared assets,
then I would suggest that based on the multilateral share of tax and
financial information agreements, undeclared or incorrectly declared
assets will be low hanging fruit for the Agenzia delle Entrate and easy
pickings. So, as I reported in my previous E-zine:
'If in doubt, declare the account'
(and your income/assets/gains too)
(and your income/assets/gains too)
Tax savings for most
I
am regularly accused of being a bit of a doomsayer on my E-zine but I
am only trying to report the information and we mustn't forget that
should these tax reforms proposed by Draghi and his team then it would
most likely mean a net reduction in tax for most people. By how much, we
will have to wait and see.
The bigger question is to what extent the proposed reforms will gain parliamentary approval and to what degree they will be watered down. I am naturally pessimistic when it comes to this particular point, but I have been surprised by the actions that Italy has taken on a few occasions in the past. The most recent of course, was the decision to go into hard lockdown at this time last year due to the spread of the virus. Italy was viewed as a leper by most other nations around the world, but the decision was quickly replicated and acknowledged by other nations as the best and most sensible option at the time.
The bigger question is to what extent the proposed reforms will gain parliamentary approval and to what degree they will be watered down. I am naturally pessimistic when it comes to this particular point, but I have been surprised by the actions that Italy has taken on a few occasions in the past. The most recent of course, was the decision to go into hard lockdown at this time last year due to the spread of the virus. Italy was viewed as a leper by most other nations around the world, but the decision was quickly replicated and acknowledged by other nations as the best and most sensible option at the time.
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Thursday, February 11, 2021
OFFSHORE TERRITORIES AND AGENZIE DELLE ENTRATE
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Wednesday, February 10, 2021
There is a new technocrat government in Italy!
I thought I would write about the colour yellow in this E-zine.
I never knew how much I liked the colour yellow. It had never really come on my radar until Lazio moved into 'zona gialla' again on the 1st February.
This lockdown has been quite challenging in many ways but it has really made me appreciate the small things which enrich our daily/weekly/monthly lives and break the daily monotony. For me, it's those meals out with family, friends and clients, those mid-week trips to the cinema to see a film that has been newly released or a special theatre trip because some performing artists are in town. And I have to admit (I never thought I would ever write this) that I actually miss those kids parties when the parents lurk around at the back of the room talking and the fathers sneak off to have a beer or a glass of wine (or 2). Oh, and not forgetting those little trips, overseas or in Italy, that have been off the table now for sometime, but are the icing on the cake of life. I long for the day when I can make, even short trips away, with the family and friends again.
Anyway, enough of my Covid colour thinking.
Well, if you have missed it, there is a new technocrat government in Italy. This time under the supervision of Mario Draghi. For anyone who is unfamiliar with Mario Draghi, he is the last ex-President of the EU Central Bank, previous head of the Bank of Italy, previous economist for Goldman Sachs and has also worked at the World Bank. If you are interested, he also has a house somewhere near Citta delle Pieve, Umbria.
What's interesting about this appointment is that he was the man who pretty much stopped the EU crisis of 2012, merely by announcing that the 'Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough'. With those words he stopped the attack on Spanish and Italian government debt, being launched at the time by the worlds financiers, and prevented a complete meltdown when Greece was also in fear of default.
There is no doubt that 'Super Mario' (his other widely known name) is a very adept politician and economist who has the ability and knowledge to get Italy out of it's current predicament, as a result of Covid.
It was Matteo Renzi who pulled out of the coalition which was keeping Giuseppe Conte in power and managing the Covid crisis, but Renzi being a 'supposed' pro-business politician didn't think that Conte had the ability to manage the €266 billion Recovery fund which is shortly arriving from the EU, and which will be used to help rebuild the economy. I happen to agree (although I think Conte has done a good job of managing the pandemic in Italy) and also believe that Mario Draghi is probably the best person for the job.
However, to what extent he will be prevented from doing so by the warring parties is anyone's guess. He is a no nonsense economist/politican and has already made it clear that he wants to surround himself with capable people, and not politicans who are looking to advance themselves or their parties.
I suspect he will get some new and interesting projects approved by Parliament, but like the technocrats before him (Letta and Monti), will eventually be stopped by the other political parties who will want to merely push their own agenda and take power.
But, let's not take this step for granted because if Mario Draghi is given enough leash to enact some serious recovery plans, and real effects can be seen, then they may give him more leash than we might expect.
My thinking is that alot of the burden will now be placed on his shoulders, and should he be able to magic the economic bunny out of the crumbling Italian economy top hat then the other political parties will quickly amass like children around a fresh birthday cake, to benefit from his good work and look to ultimately grasp power and take all the credit.
It's all to play for. I shall be watching this one carefully. I think like most of us who have been living in Italy for quite some time, we really hope that something significant happens because we see so much potential for change.
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Saturday, January 23, 2021
Brexit - Important financial news - Part 2
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