Italy's Superbonus: Good Intentions Meet Poor Fiscal Planning
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.
The state would pay homeowners 110% of the cost of renovating their properties through an innovative financial mechanism: 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 (Capone and Stagnaro, 2024). 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.
The SuperBonus created the conditions for what Draghi's Minister of Economy Daniele Franco called “one of the largest frauds in the history of the Republic ” (Capone and Stagnaro, 2024). 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. Fraudulent credits could then be resold multiple times in an unregulated market of state-backed tax discounts. In 2023, authorities estimated that such fraudulent activities had cost taxpayers €15 billion.
By 2024, it was clear that the lunch was, of course, anything but free. 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 (€160 billion of Superbonus + €60 billion for the 90% facade restoration credit and other 65% credits) — 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. This occurred in a country already burdened with debt of 140% of GDP, facing massive unfunded pension liabilities of over 400% of GDP, and whose debt is rated at Baa3 by Moodys — one notch above "junk" status. The cost dwarfs the €71 billion in grants Italy received from the European Union's Recovery and Resilience plan. Despite limited coverage in the international press, the Superbonus is easily one of the costliest fiscal errors in history.
From the excellent 'Silicon Continent' by Luis Garicano and Pieter Garicano.
