Economy Minister Tommaso Padoa-Schioppa branded tax dodging a "national epidemic" on Thursday after it emerged that more than 270 billion euros of taxes went unpaid each year - the equivalent of almost 20% of GDP.
"We're not talking about an illness but a national epidemic... It's an absolutely abnormal situation," the minister said.
On Thursday, the Italian tax office sounded the alarm with a report on income tax data for 2004.
It said that for every 100 euros of income tax paid in Italy, 55 euros were evaded.
The tax office said the phenomenon had steadily grown since 1980, when evaded taxes amounted to just under 44 billion.
By 2002, the figure had risen to 220.6 billion, it said, while over the period 2002-2004, it rose again by 50 billion.
The tax office stressed that honest tax payers were the ones who paid the most for their cheating fellow nationals, shouldering one of the highest tax burdens in Europe.
It said that Italy's official fiscal burden of 41-42% of GDP was far below the "real" figure, which was above 50% and had been so since 1989, hitting a peak of 55% in 1997.
Padoa-Schioppa admitted last week that the fiscal burden in Italy was "excessive".
But the minister was criticised for the comment since he was also the architect of this year's unpopular, 34.7-billion-euro budget which contained major tax hikes.
The budget extended the highest income tax rate of 43% to all those earning 75,000 euros per year or more.
At the same time, those earning between 55,000 and 75,000 euros annually saw their tax rate lifted from 39% to 41%.
Padoa-Schioppa and Premier Romano Prodi defended the reforms and other tax-raising measures as essential for straightening the country's wobbly public accounts and meeting European Union budget targets.
The government has pledged to crack down on tax dodgers as a way of bringing tax rates back down.
Only 1.6% of Italians declare earning more than 75,000 euros a year while more than 90% claim to earn less than 40,000.
Industry Minister Pierluigi Bersani said on Thursday that "we have very high fiscal pressure because of the public debt and because we have colossal evasion which forces honest taxpayers to pay unacceptable tax rates".
"We must continue the fight against evasion because that's the only way to reduce taxes," he said.
But opposition chief and former premier Silvio Berlusconi, who came to power in 2001 on a pledge of lower taxes, argued that bringing tax rates down would automatically reduce evasion.
"The government must reduce fiscal pressure and establish fair tax rates. That will encourage citizens to be honest," said Berlusconi, who once famously said that high taxes justified tax dodging.
The billionaire media mogul, who is Italy's richest man, told reporters that he himself had just signed the taxman a cheque for 43 million euros.
Anger among law-abiding taxpayers grew last October with the release of statistics which appeared to show that whole categories of self-employed workers were vastly under-declaring their earnings.
The figures showed that jewellers declared average annual earnings of 16,650 euros; restaurant owners 13,450 euros and estate agents 20,560 euros, while taxi drivers, who pay up to 200,000 euros on the black market for their licences, declare less than 1,000 euros a month.
Shoe sellers in the northern town of Bolzano appeared to set a record by declaring average earnings of less than 60 euros per month.
The tax rates for the self-employed are set by so-called "sector studies" which are revised at intervals.
The government has just completed a reform of the system which has led to tax hikes, sparking fierce protests from self-employed workers in the north in particular.
They complained on Thursday that the sector studies had been transformed into an unfair minimum tax which failed to correspond to their real earnings.
