Budget Bill, Court of Auditors: ‘As it stands, income tax deviates from the progressive system; it is categorical’

‘The reduction in the marginal tax rate for the 50,000–55,000 euro bracket accentuates the irregular pattern of effective marginal tax rates’, with regard to the IRPEF cut included in the Budget Law, which results in “a pattern of marginal rates that is difficult to reconcile with a coherent design of the tax’s progressive structure”.

This was highlighted by the Court of Auditors during a hearing on the draft Budget Bill before the joint Budget Committees of the Chamber of Deputies and the Senate, confirming ‘the now categorical nature of personal income tax (IRPEF), with average and marginal rates differentiated by type of income, a differentiation further accentuated for the self-employed, half of whom may opt for the flat-rate scheme’. The Court also notes that the temporary nature of the measure means that, from 2028, the 43 per cent rate will be reinstated for incomes between 50,000 and 55,000 euros, therefore, for the same level of income, an increase in tax of up to 500 euros; this benefit, in absolute terms, is ‘maximum and equal for all taxpayers with an income exceeding 55,000 euros, including those with the highest incomes’.

The Court is also scrutinising the pensions dossier. With the return to band-based adjustments in the equalisation of pensions, it highlights that ‘the budget makes the choice to reintroduce a system that is more disadvantageous for average and upper-middle-range pension entitlements, fuelling uncertainty regarding the real value of a pension years after retirement’. Whilst noting that this system has ‘passed the Constitutional Court’s scrutiny’, according to the Court of Auditors, ‘less uncertain mechanisms are desirable, which could also guide pensioners’ consumption and investment choices on the basis of a reasonable expectation of the future trend of their “real” pension income’. Since 2012, the Court of Auditors notes, there has been ‘the prolonged adoption of measures to curb the monetary revaluation of medium-to-high pensions, which have progressively eroded their purchasing power. Whilst the impact of these restrictions was marginal during periods of significant price declines and deflation – it is noted – sharp rises or inflationary shocks – particularly in the 2023–2024 period – have led to a marked devaluation of pensions that are not fully protected’.

Returning to the subject of taxation, the Court observes that ‘the tax and social security measures aimed at productive activities, the self-employed and the agricultural sector represent a concrete sign of attention being paid to a fundamental part of our economic system: the budget package addresses the tax treatment of small businesses, supports employment and encourages investment in innovation. At the same time, the Court emphasises that it is ‘important that the need for financial coverage does not result in a strain on businesses’ liquidity, particularly that of smaller enterprises; a liquidity on which the budget has an asymmetric impact, as the bulk of the real financial benefits for businesses will be concentrated in 2028 due to the mechanisms governing tax balances and advance payments. Conversely, the decision to spread the remaining Superbonus credits over 10 annual instalments (until 2036) will result in an immediate reduction in liquidity for those holding these credits, safeguarding the State’s balance sheet whilst shifting the burden to subsequent financial years’.