Income tax, young people, VAT-registered individuals, the elderly and banks: all the latest developments in the budget
The budget has been given the go-ahead, with spending rising to 26 billion to fund tax relief on incomes of up to 55,000 euros: for the time being, this is only planned for 2027, like many other tax breaks. The cost to the financial sector is estimated at 5.5–6 billion
Key points
On the night before the Cabinet meeting, the budget bill increased the burden on banks, insurance companies, the gambling sector and tobacco retailers to fund the income tax cuts for the middle class. It also shifted a portion of measures that had already been funded onto the energy safeguard clause, to free up resources for other initiatives.
In the form approved yesterday by the Government, the Budget Bill has expanded somewhat compared with the initial, modest proposals, totalling 26 billion (12 plus the two clauses on energy and defence) instead of the 23.5 set out two weeks ago in the Draft Budgetary Plan (DPB). The latest dose of ‘carbohydrates’ was served at lunch on Tuesday at Palazzo Chigi, when the insistence of Forza Italia leader Antonio Tajani led to a 10-point cut in personal income tax (IRPEF) for incomes between 50,000 and 55,000 euros being added to the budget package. More than half of the 1.2 billion cost of the new tax cut will come from banks and insurance companies, which, as anticipated in yesterday’s *Il Sole 24 Ore*, will see the bill rise to between 5.5 and 6 billion (the precise figures will only emerge from the text and technical report) from the initial 5 billion; with the additional IRES surcharge for the financial sector rising to 3 per cent, bringing the overall rate to 30.5 per cent for banks and 27 per cent for insurance companies. The back-and-forth over the budget’s overall funding also involves the gaming sector, which may have to contribute more than the 700 million indicated in recent days, and the tobacco sector, with the price rises previously scheduled for 2028 being brought forward to the middle of next year: 2027 will therefore see two price rises, on 1 January and 1 July.
Income and expenditure
As revised, the budget plan is based on the exceptional deficit allowance for energy and defence, and on the funding provided by banks and insurance companies, the gambling and tobacco sectors, and a new round of cuts to ministries (around 1.2 billion next year). On the expenditure side, it sets out fiscal measures (personal income tax cuts, a mini-tax on additional income for under-30s, incentives for hiring young people and mothers, and the reinstatement of tax relief on contractual pay rises), the housing chapter with the new 5 per cent flat-rate tax on agreed rents (1 per cent if the tenant is under 35) and the extension of the 21 per cent rate to shops, measures for families, ranging from the €100 annual ‘Valore nuovi nati’ fund to the enhanced maternity bonus, and the healthcare strand dominated by the €300 voucher for the elderly. The bonus, designed to help cover healthcare costs not covered by the public health service for the over-75s, is therefore taking the most modest form among the options discussed in recent days: it will cost just over 1.6 billion, offering a one-off payment of 300 euro to 5.5 million elderly people, and will therefore fall well short of the 2.4 billion of the maximum estimate mooted so far. Cuts are also being made to the pension fund. It will amount to 850 million, falling short of the one billion envisaged at the start of the week: this is to be allocated to the option of retiring at 64, as intended by the League, and to an increase in minimum pensions, in line with the alternatives advocated by the majority coalition partners.
Investments
The budget for infrastructure investment – particularly in railways and roads – is then funded by the exceptional deficit and national measures, with the aim of improving the safety and efficiency of transport links. New funds are being allocated to improving energy efficiency in hospitals, schools, universities, research organisations and sports facilities.
Car tax and personalised number plates
Among the confirmed measures, the structural extension of the abolition of vehicle tax on small cars and motorbikes stands out; however, this will only result in new costs from 2028: some additional funding for next year may be required due to the increase in the power threshold for large families (reserved for those with more than four children, this would cost 40 million). However, some revenue may come from the new fee-based ‘personalised number plates’ (600 euros each).
Temporary tax cuts
From income tax cuts for the middle class to the extension of tax exemptions on contractual pay rises, bonuses and shift work, from vouchers for the elderly to the flat tax for young people, from the renewal of building bonuses to flat-rate tax on shops and agreed rents, a large proportion of the tax measures are set to expire at the end of 2027. This is a significant aspect of the legislature’s final budget, which leaves it to the next government to decide whether or not to renew these tax breaks: in other words, in financial terms, whether to find the at least 6 billion needed to prevent them from expiring.
