Italy's construction industry sounds the alarm over the end of government subsidies

Up to 40,000 Italian construction sites have been left in limbo after the government scaled back a popular set of tax breaks known as the "Superbonus."

‌The scheme, which allowed people to claim back 110 percent of the cost of making their homes more energy-efficient, has been credited with helping the Italian economy to recover from the coronavirus pandemic - but the government says it's too expensive, costing the country up to $5 billion per month.

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With the tax breaks being cut to 70 percent this year and 50 percent next year, trade unions and construction firms say work has ground to a halt at thousands of sites across Italy.

‌"It's about 40,000 worksites, affecting more than 350,000 families," said Antonio Di Franco, Secretary General of the Fillea CGIL trade union. "These sites are all at risk of staying unfinished, also generating a lot of litigation between citizens and businesses. 

"In the end, if we had to estimate how much this will cost the state, there's a risk of it costing even more, because there will be lots of litigation in the Italian courts."

‌Those who filed deposits for works by the end of 2023 are still eligible for the original tax breaks, but many construction companies say they cannot afford to finish projects under the new levels.

Italy's Finance Minister Giancarlo Giorgetti said the country couldn't afford the old policy any longer. Prime Minister Giorgia Meloni inherited the Superbonus from previous governments and has also been openly critical of it.

Tax credits and falling demand

‌Many in the construction industry believe the scheme was simply badly designed from the start.

‌"The real innovation, which is also what brought its demise in the long run, was the ability - which was never possible before - to sell these credits on, to basically use them as payment," explained Angelica Donati, Head of Business Development at construction firm Donati. 

"With the old bonus schemes, you had to pay out of pocket, and then you would be able to basically detract those expenditures from your tax bills."

‌Critics say the ability to buy and sell tax credits was partly to blame for widespread fraud since the Superbonus was first introduced.

‌As construction companies in Italy adjust to lower government subsidies, the sector is also facing significant challenges across the entire Eurozone. EU survey data suggests construction firms are finding it easier to hire workers and track down materials, but they also say demand has been falling in recent months.

The industry hopes the European Central Bank will start cutting interest rates in the spring, which would make it cheaper for both companies and families to borrow to invest in property.

Meanwhile in Italy, many buildings that should now be more energy-efficient could be left worse off than before, with their owners potentially tied up in years of litigation.

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