Income tax, the housing bonus and the full implementation of the car tax exemption: the tax authorities’ 10 key points on the budget agenda

Staying on the subject of flat-rate taxes, there are also those due for renewal, including the tax on contract renewals. In practice, pay rises paid to private-sector employees in 2026, pursuant to collective agreements signed between 1 January 2024 and 31 December 2026, will be subject to a substitute tax (in lieu of personal income tax and local surcharges) of 5 per cent if the 2025 income threshold does not exceed 33,000 euros. According to the technical report accompanying the 2026 Budget, approximately 3.8 million workers are potential beneficiaries of the 5 per cent substitute tax on pay rises paid to private-sector employees in 2026, in implementation of the collective agreements signed between 1 January 2024 and 31 December 2026. Both Prime Minister Giorgia Meloni and the Minister for Labour, Marina Calderone, have expressed their intention to renew the measure in the budget as part of a package of measures to support wages and productivity.

With a view to supporting wages and productivity, the list of measures under consideration for inclusion in the budget also includes the confirmation of a flat-rate tax of 15 per cent for private-sector employees, up to an annual limit of 1,500 euros, on supplements and allowances for night work, surcharges and allowances for work carried out on public holidays and weekly rest days, shift allowances and other emoluments linked to shift work (as provided for in national collective labour agreements). Last year’s budget, which had introduced the measure for 2026 only, had limited its scope to private-sector employees with an income not exceeding 40,000 euros (using 2025 as the reference period).

Another tax concession currently seeking funding and concrete implementation is the exemption of the thirteenth-month bonus from tax, which would also be implemented via a flat tax. The political intention is that this would provide further relief for those on the lowest incomes. With a rate of 15 per cent for incomes up to 15,000 euros, the measure would cost half a billion. However, in recent days, Marco Osnato, Chair of the Chamber of Deputies’ Finance Committee, has emphasised that further investment in this area could be envisaged by adjusting both the substitute tax rate and the income threshold. The attempt to ease the tax burden during the Christmas period had already been ‘put into practice’ in 2024 with the one-off €100 bonus for employees with an income of up to €28,000 and at least one dependent child for tax purposes: a measure that had been adopted precisely in anticipation of ‘the introduction of the substitute tax regime’ provided for in the tax authorisation bill. Now, the budget represents a last-minute opportunity to implement and ensure the continuity of a measure devised as part of the tax reform to reduce the tax burden on employees and thus allow for greater purchasing power, thereby supporting demand during the Christmas festive season.

On the subject of property taxation, however, Deputy Minister for the Economy Maurizio Leo has indicated an openness to the idea of extending the flat-rate tax on rents to include shops as well. Leo’s key condition is that ‘the necessary resources must be found’. The measure, “if the right balance is struck”, will be “limited to certain categories”, he explained. There is already a precedent: the (as yet isolated) case of the application of the flat-rate tax regime planned for 2019. Only for tenancy agreements entered into that year was it provided that rental income from properties in category C/1, with a floor area not exceeding 600 square metres and owned by private individuals, could be taxed at a flat rate of 21 per cent instead of the standard personal income tax. Among the proposals being discussed is the idea of reducing the floor area requirement, which, as it stood in the 2019 scheme, potentially covered 1.5 million individual property owners. It should be noted that it was the tax delegation that had rekindled hopes of a preferential tax rate on commercial properties let to businesses and professionals, but the measure remained unimplemented precisely due to a lack of resources.

Still on the subject of housing, among the measures awaiting confirmation is the current framework for building grants for renovation work. Without intervention, in fact, the subsidy rate would fall to 36 per cent for the main residence and to 30 per cent for other properties (such as second homes and vacant properties). An extension of the current scheme would, however, guarantee a 50 per cent subsidy for work on the main residence and 36 per cent for other properties. To this could also be added a confirmation of the furniture and white goods tax relief, which expires on 31 December and currently offers a 50 per cent tax relief rate for all properties, subject to an annual spending limit of 5,000 euros.

A new 65 per cent ‘eco-bonus’ could also be introduced as part of the building incentives, which might ‘draw on’ a portion of the 14 billion budget flexibility linked to the energy transition. A range of works could therefore be eligible for a higher incentive than the current level of tax relief (50 per cent on the main residence and 36 per cent on second homes until 31 December 2026). This would mark a return to the past, when energy efficiency improvements were eligible for a more substantial bonus.

The Council of Ministers meeting on 16 September provided for an exemption from road tax for cars with an engine power of up to 80 kW or motorbikes for 2027. The Government’s stated aim is to bring this measure, which will cost 2.3 billion euros, into full effect. The budget bill could already provide an opportunity to honour these commitments and, as some members of the ruling coalition have already suggested, to see if further action can be taken.