The Italian government is concerned about the "out of control" costs of a more comprehensive scheme aimed at improving home energy efficiency, fearing the program's expenses could cause the deficit to rise significantly and are seeking ways to control it.

The "super bonus" scheme, which can be used for anything from insulation to solar panels, new boilers, and windows, was introduced in May 2020 to boost the economy after the coronavirus lockdown.

Environmentalists were skeptical about its benefits, but Italians rushed to take advantage of the program. The state paid 110% of the cost of making homes greener, with the subsidy delivered via a tax credit or tax reduction.

As intended, it boosted the construction sector – but it has cost the state 61.2 billion euros ($64.8 billion), according to the Finance Ministry.

Prime Minister Giorgia Meloni, whose coalition government took office in October, said last weekend the situation was "out of control."

She said the scheme had led to fraud worth 9 billion euros. In contrast, the tradeable nature of the tax credits had "generated a sort of parallel currency, and that parallel currency risks having a devastating impact on the budget."

Finance Minister Giancarlo Giorgetti described it as a "wicked policy."

Lorenzo Codogno, a former chief economist at the Treasury, told Agence France-Presse (AFP) that attempts now to quantify the scheme's impact on Italy's strained public finances could be "a wake-up moment for financial markets."

He warned Italy's deficit could be revised substantially, while the construction sector and the government "could have liquidity problems."

Italy's deficit was an estimated 5.6% of gross domestic product (GDP) last year and was set to fall to 4.5% in 2023; revised figures potentially incorporating the super bonus scheme are due out on March 1.

Construction boom

The super bonus scheme was introduced by former Premier Giuseppe Conte, whose populist, environmentalist Five Star Movement led the coalition government then.

It allowed homeowners to either deduct the cost of work from their taxes over several years or sell the tax credit to their builder, who would sell it to a bank, which would then claim the money from the state.

Angelica Donati, the president of the national constructors' association (ANCE), told AFP the bonus had been "fundamental in the aftermath of COVID-19, both for reviving the Italian economy and restarting the construction industry."

The construction sector grew by 21.6% in 2021, helping fuel Italy's post-pandemic boom.

But the scheme generated much more work than initially forecast, and banks stopped buying credits last year, leaving some construction companies in the lurch.

Meloni's government has already sought to restrict the subsidies, reducing the super bonus from 110% to 90% last year.

Then last week, it suddenly stopped using the tax credits as it tried to work out how to unfreeze existing credits for an estimated 19 billion euros worth of work that has been carried out but not yet paid for.

ANCE said some 25,000 construction companies were at risk of folding.

Superbonus users can now only receive money back from the state via tax breaks – but that mainly benefits those on higher incomes.

Wasted opportunity

The government is looking into possible alternatives to the credit system. Climate campaigners hope it will also change the bonus' scope.

Experts have lamented what they see as a wasted opportunity to engineer a cultural shift towards appropriately green housing.

In a study last year, the Bank of Italy said the super bonus was "not a cost-effective way" to tackle climate change.

Matteo Leonardi, co-founder of Italian climate change think tank ECCO, said it lacked "ambition."

"It has not been linked to climate targets, which is what would have justified the costs," he told AFP, adding that renovations had only to boost efficiency by two energy classes.

It also did not sufficiently promote innovative but less familiar technologies like heat pumps.

But Leonardi said for all its faults, the super bonus had value if radically revised to meet more ambitious targets.

With the tax credits gone, the government is now "just giving a lot of money to high-income families to install gas boilers."