Economic stimulus and climate protection in one fell swoop with the “Superbonus 110 percent”: This is how the government of left-leaning Prime Minister Giuseppe Conte wanted to revive construction activity in Italy in 2020 and at the same time ensure more efficient heating in houses between the Alps and Sicily.

Those who invested in the modernization of the buildings could take advantage of generous tax breaks. Households could either deduct the renovation costs from their tax returns over a five-year period, or pass them on to the builder and receive an immediate discount on their bill.

Italians often didn’t have to pay a cent for the heat pump

The aim was to enable hundreds of thousands of financially weak property owners to modernize their four walls at practically the expense of craftsmanship. You often didn’t have to pay a cent. The companies received orders and the opportunity to save taxes for years at the same time. Or they could resell the bill to a bank. The 110 percent was introduced instead of 100 percent because in every transaction a party held out the hand for corresponding commissions. The state covered that too.

The warm rain of money from Rome has actually triggered an unusually intensive wave of modernization in the country. The Italians wait many months for a craftsman. The experts installed half a million heat pumps last year – a top value in Europe. In Germany it was almost half.

“The market has gone up with incredible strength,” confirms Stefano Negri, Head of Marketing at Mitsubishi Electric in Italy for the “FAZ”. However, the climate effect is very controversial. Because very few of the installed heat pumps are suitable for heating the houses alone. The focus for residents is on the sun-kissed boot of air conditioners that can both cool and heat through air exchange. The systems work in conjunction with a gas heater. On cold days, the burners then bring living spaces and water to the required temperature when the heat pumps are overwhelmed.

The Superbonus helped finance one million new gas heaters

And there were also significant subsidies for this combination, because only a few Italians want to say goodbye to gas heating altogether. The reason: The buildings in the medieval city centers are not suitable for the alternative technology. Two thirds of the Italian housing stock is more than 50 years old. And fewer new houses are being built in rural areas. So it’s no wonder that a million new gas heaters were installed last year, which the Superbonus helped to finance.

“Fatta la legge, trovato l’inganno – law made – fraud found”, is the saying between Bolzano and Palermo when Rome has come up with a new tax or levy. And the same game applies to subsidies. For the resourceful Italians, the Superbonus was almost an invitation to renovate not only the houses but also their own coffers.

The previous system was “prone to fraud” because the loan could first be transferred to a bank, a financial intermediary or a company, “without any limitation and initially without any control,” concedes the current Prime Minister Giorgia Meloni, who has since pulled the emergency brake has.

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Allegedly 2411 houses should be renovated in ghost villages

In fact, literal Potemkin villages were set up, which fooled the state into industrious rehabilitation work, when in reality not a stone was moved. Last spring, the financial police uncovered fraud amounting to 3.2 billion euros. Communities around Avellino in southern Italy were even invented in the applications. In the ghost villages, 2,411 houses are said to be renovated.

In northern Italy, several companies have been unmasked that have billed tens of millions of euros in tax bonuses for energy-efficient facade renovations without ever being able to tackle such work. Overall, the government in Rome now assumes that almost every tenth euro from the subsidy program was stolen.

Above all, the rich property owners, who were able to reap a substantial increase in value at the expense of the state, benefited from the super bonus. The left-leaning Conte government had actually thought differently.

“No one has asked for cost estimates to compare”

In addition, the “super bonus” undermined the economic basis: “Nobody has obtained cost estimates for comparison,” explains Negri. The result was a price explosion for all work and equipment. Rome was presented with the bill.

In Italy’s weak coffers, the various construction subsidy programs have torn an additional hole of more than 110 billion euros since 2020 – which is more than, for example, the special fund that Germany is investing in its Bundeswehr. In 2022 alone, 65 billion flowed into the modernization of real estate. It is more than the state spends on education from kindergarten to university.

Meloni government cuts funding

Faced with loopholes in the law and treasury, Meloni’s conservative government has now shut the whole thing down. The subsidy rate was reduced to a maximum of 90 percent and should only apply to certain properties. Of course, this caused a lot of resentment in the country.

The business newspaper “Il Sole 24 Ore” estimates that projects with a volume of 32 billion euros are currently affected by the braking maneuver in Rome. They are waiting for a new legal basis so that they can still be used for the modernization of Italian real estate. That shouldn’t be that easy, because Brussels recently issued a warning that new money will only flow from the EU’s reconstruction program if Rome ensures transparent spending.

“The government has dealt a deathblow to the construction industry,” says ex-Prime Minister Conte, who proudly points out that Italy has grown by 6.7 and 3.8 percent respectively in the past two years. Not everyone understands the calculations of the head of the left-wing populist “Five Star Movement”. “If you want to generate healthy growth, then the state will ultimately get more in than it has spent,” the newspaper “Italia Oggi” lectures the politician. In fact, the Association of Italian Tax Advisors has calculated that only 43 percent of subsidies spent on the construction industry will ever result in a return as a tax.

Demand for heat pumps collapsed: “The market is now practically dead”

The slowdown in Rome has spooked homeowners and investors. In the capital itself, the construction of 1,500 social housing units has been halted because funding is shaky. In fact, after the subsidy ends, many builders have to calculate more precisely what is affordable and what is not.

In Italy, interest rates between 4.2 and 4.8 percent are due for construction loans. Without a “super bonus” many homeowners wave their hands and forgo the expensive renovation. Demand for heat pumps has also collapsed in Italy. “The market is now practically dead,” notes Mitsubishi man Negri.

The head of Vaillant Italia also looks bleakly into the future: “Demand will shrink sharply this year.” Now the heating engineers are demanding a new edition of the bonus so that business can get going again.

The contribution “How the “super bonus” for heat pumps drove Italy’s heating revolution against the wall” comes from economic courier.