Italy's underground economy has now reached "embarrassing proportions", Deputy Economy Minister Vincenzo Visco admitted on Tuesday, as the government battled to fulfil an election vow to defeat tax evasion.
The underground economy - or business activity which is hidden from the state in order to avoid taxation - now churns out goods and services worth 27% of the official economy, Visco said in a report to parliament.
The 'official' estimates of the value of undeclared business put it at 16-17% of GDP.
Visco said the government knew where most of the tax dodging went on, listing agriculture, commerce, industry and services to people and companies as the most affected sectors.
There are fewer tax dodgers in the industrial north than in the south, but the amounts of money involved in the north were much higher, Visco said.
"We're trying to organise our efforts to concentrate on companies built on capital rather than those built on people, because that's where evasion is highest," he said.
Italian tax police uncovered 15.3 billion euros in undeclared income in 2006. Officials said the underground economy showed no sign of diminishing.
Meanwhile, mostly thanks to an upturn in the economy, tax revenue for the first four months of 2007 were up 5.1% on the same period last year.
Officials said the rise would have been higher had it not been for a mild winter which meant energy suppliers did less business and hence paid less tax.
In other economic data released on Tuesday, Italian economic growth was reported to have slowed in the first three months of 2007, with GDP up 0.2% over the previous quarter.
National statistics bureau Istat said the figure was the lowest quarter-on-quarter result since the last three months of 2005. It was also below the European Union average.
"There's a lot of work still to be done," commented Economy Minister Tommaso Padoa-Schioppa, referring also to the risk that Italy would be overtaken by emerging economies.
