Analysis: Italy’s “drugged” construction boom hits a wall

  • “Superbonus” grants 110% subsidy for green building work
  • Incentives hit by fraud, criticized by Draghi
  • Banks have stopped accepting tax credits
  • Builders have not been paid, warn of bankruptcies and layoffs

ROME, June 22 (Reuters) – Innovative incentives for people to green their homes revived Italy’s construction sector last year, boosting its economy and drawing international praise. A few months later, it is close to ending in tears.

The complex system of tradable tax credits that has supercharged the sector has come to a halt, as the government cracks down on suspicion of fraud, leaving builders unpaid for work done.

They and a business lobby group are warning of tens of thousands of bankruptcies and layoffs that could tip Italy’s weak economy into recession.

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Companies that have not been paid for around seven months have in turn stopped paying suppliers and consultants in a domino effect involving thousands of companies and workers.

“We are heading for a catastrophe, not just for the construction sector but for the whole economy,” says Norbert Toth, whose construction company in the central coastal town of Formia has laid off 20 of 30 workers she had six months ago.

The crisis is already beginning to emerge in official data.

Construction output fell in April for the first time in nine months, construction confidence in May was at a six-month low and the construction PMI was at its lowest since January 2021.

Some of the 200 billion euros ($210 billion) in pandemic recovery funds that Rome needs to secure from Brussels are also potentially at risk. One of the conditions of the payment is that Italy almost doubles the energy efficiency of its buildings by 2025, which could be compromised without the incentives.


The highly touted schemes launched in 2020 have turned into a very Italian story of inventiveness, fraud and bureaucracy.

Toth, 39, is a co-founder of a group called National Construction Class Action, in which hundreds of small construction companies like him exchange messages and lobby politicians to try to keep the incentives alive.

Some companies, desperate for cash, are offering to sell tax credits worth tens of thousands of dollars at huge discounts of up to 50%.

Under the most generous scheme, known as the “superbonus”, the state paid 110% of the cost of improving the energy efficiency of buildings, from insulation to solar panels to replacement of old-fashioned boilers and window fittings. Read more

It allowed homeowners to deduct the cost of building work from their taxes over a five-year period or sell the tax credit to the builder as a payment.

The builder could then sell it at a discount to another company or bank, which in turn could sell it to another, much like any other financial instrument providing liquidity to the system.


Despite a lot of red tape and frequent rule changes, the program appeared to be a resounding success.

Italy’s long-sluggish construction sector contributed 0.9 points to last year’s 6.6% economic growth.

In November, the European Commission’s Construction Sector Observatory called the superbonus a “very successful measure” and recommended that it be extended to a wider range of buildings.

Other European countries, including Germany, Spain and France, have offered their own grants for green home improvements, but none are as generous as Italy’s.

Then, at the end of last year, the tax police said they had uncovered an alleged fraud worth more than 2 billion euros linked to green building incentives, including, to a lesser extent, the super bonus.

This raised alarm among policy makers and Prime Minister Mario Draghi began to strongly criticize the measure, which had been introduced by the previous administration and renewed by Draghi.

“We don’t agree with the superbonus,” he told the European Parliament last month, in the unusual case of a government criticizing one of its own policies.

Draghi said this not only led to scams, but also drove up costs because customers, knowing they would be reimbursed, did not need to negotiate with builders on price.

Industry Minister Giancarlo Giorgetti said it was “drugging the sector and contributing to inflation”.

This is not supported by Eurostat data showing construction cost inflation in Italy in the fourth quarter of last year was 5.5%, well below the eurozone average. 8.9%.


In an anti-fraud campaign, Draghi set limits on the number of times tax credits could be sold from one bank or company to another, undermining the mechanism on which the system was based.

Regulatory uncertainty and hostile comments from ministers rattled confidence and one by one the country’s biggest banks stopped buying the tax credits from customers and builders, leaving them out of pocket for the works carried out.

“More than 33,000 companies risk bankruptcy with the loss of 150,000 jobs,” says Claudio Giovine, head of economic analysis at Italian small business lobby CNA.

A survey this month of members of the group showed that 60,000 businesses were short on cash because they were unable to sell the tax credits they had accepted as payment for work.

These blocked credits amount to more than 5 billion euros, estimates the CNA. As a result, 50% of companies are delaying payments to their suppliers, 30% have stopped paying their taxes and 20% are not paying their workers, according to the survey. Nearly 50% said they were at risk of having to close their business.

Whether last year’s boom will turn into a real meltdown will depend on what is decided in the coming weeks.

With the economy already stagnating, alarmed Italian parties have presented numerous proposals to parliament to revive the superbonus.

These include expanding the types of businesses to which banks can sell their tax credits to include small businesses with a turnover of over €50,000, and allowing banks to use the credits to buy government bonds. It remains to be seen whether such ideas are acceptable to Draghi.

Construction company owner Toth says industry data over the summer will be ‘horrendous’ and the only way to save the program is to restore the unlimited tradability of tax credits , although he acknowledges that some companies may have broken the rules.

“Last fall, everything was going so well,” he said. “It was truncated so brutally.”

($1 = 0.9508 euros)

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Additional reporting by Giuseppe Fonte; Editing by Alison Williams

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