by Mish Shedlock, Mish Talk:
A Modern Monetary Theory “Superbonus” trial is underway in Italy. The state pays 110 percent of home renovations.
In an effort to stimulate the economy during Covid, MMT proponent and then Prime Minister Giuseppe Conte came up with a not so brilliant idea that is now so popular no politician has been able to completely turn it off.
Contractors are going door-to-door offering to renovate homes for free.
The cost of scaffolding is up 400 percent, And the cost of the program, estimated at 35 billion Euros is now 220 billion euros and rising.
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In the depths of the COVID pandemic, with the ECB committed to keeping sovereign spreads low and the EU fiscal rules suspended, Italy launched what would become one of the costliest fiscal experiments in history. Prime Minister Conte announced that the government would subsidize 110% of the cost of housing renovations. The “SuperBonus,” as the policy was called, would improve energy efficiency and stimulate an economy that had barely grown in over two decades. Consumers would face neither economic nor liquidity constraints:
Rather than direct cash grants, the government issued tax credits that could be transferred. A homeowner could claim these credits directly against their taxes, have contractors claim them against invoices, or sell them to banks. These credits became a kind of fiscal currency – a parallel financial instrument that functioned as off-the-books debt. The setup purposefully created the illusion of a free lunch: it hid the cost to the government, as for European accounting purposes the credits would show up only as lost tax revenue rather than new spending.
Contractors often inflated renovation costs; for instance, a €50,000 project might be reported as €100,000. The bank would purchase the €110,000 tax credit at near face value, enabling the contractor to pocket the difference, sometimes sharing it with the homeowner. At times, no work at all was carried out, in which case, invoices for non-existent work on fake buildings were a perfect tool for organized financial crime.
Builders were going around offering to pay people money to renovate their houses. A scheme initially budgeted at €35 billion will end up costing Italian taxpayers €220 billion — about 12% of GDP. Annual costs ballooned from 1% of GDP in 2021, to 3% in 2022, and 4% in 2023. Only 495,717 dwellings would end up being renovated – meaning the average cost of the program was around €320,000 per home.
Riccardo Fraccaro – a lawyer, Five Star Movement politician, Modern Monetary Theory adherent and architect of the SuperBonus – saw the program as a way to push a fiscal expansion while complying with EU rules. By designing the Superbonus as a system of transferable tax credits, Fraccaro and his advisors sought to create a parallel financial instrument that did not immediately register as public debt.
The [European] Commission approved the inclusion of the Superbonus in Italy’s NRRP after its design, with full knowledge of the fact this program included a 110% subsidy.
When Italy’s deficit shot up in 2023 due to the Superbonus, rising from a projected 5.5% to 8% of GDP, there was no market panic. Italian bond spreads remained contained, thanks to the ECB’s Transmission Protection Instrument (TPI), which reassured investors without the ECB even needing to intervene. By removing the constraint of market discipline, the ECB allowed the Superbonus to persist far longer than it otherwise would have.
The very mechanisms designed to protect the euro may now be undermining it. When the ECB steps in to prevent market pressure on sovereign bonds, it removes a crucial disciplining force on national fiscal policies, creating perverse incentives for politicians to expand spending without regard for long-term sustainability.
New Rules Scale Back Program
The above article, written February 14 2025, is amusing but dated. The program is still in place, but at a reduced rate.
