Italy approves 2025 budget focusing on tax cuts and debt control measures

Rome: Italy’s parliament on Saturday approved the 2025 budget, aiming to both appease EU demands to lower the eurozone nation’s deficit and honour Prime Minister Giorgia Meloni’s pledge to cut taxes.

Over half of the package, worth some 30 billion euros ($31 billion), is devoted to cuts to tax and social security contributions for low- and middle-income earners.

Rome is having to perform a fine fiscal balancing act, after Brussels took Italy to task earlier this year over its debt worth nearly 3 trillion euros, the second highest as a proportion of gross domestic product (GDP) in the European Union.

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Meloni’s hard-right coalition has committed to reducing the public deficit to 3.3 percent of GDP in 2025, down from an expected 3.8 percent this year.

But the budget comes amid slowing growth, with the ISTAT national statistics office estimating GDP this year to increase just 0.5 percent — half what it forecast in June.

The measures approved include making permanent a merging of the lower two income tax brackets, so people earning 28,000 euros a year can pay 23 percent instead of 25 percent.

And the budget expands the number of people eligible for a reduction of social or tax charges.

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Meloni’s far-right Brothers of Italy party is also trying to boost Italy’s flagging birth rate, and the budget allocates a 1,000-euro bonus per newborn for families earning up to 40,000 euros a year.

Environmental associations have complained there is little for tackling man-made climate change, though Rome is scrapping a bonus for gas-fired boilers, under pressure from Brussels.

Instead, buyers of energy-efficient household appliances will be eligible for a bonus of up to 100 euros — rising to 200 euros for households earning under 25,000 euros.

Companies that boost hiring and reinvest part of their profits will be able to benefit from a reduction in the corporate tax rate, which drops from 24 percent to 20 percent.

This new measure is partly financed by Italy’s banking sector, which has been asked to contribute a total of 3.4 billion euros for the 2025 and 2026 budgets.

They have agreed to postpone tax credits for these two years to provide liquidity to the Italian state, which should repay them later.