A new budget. On Tuesday, Italy’s government finalised its 2025 budget, submitting it to the European Commission for review.
- The plan appears to focus on two key priorities: aligning with the EU’s new fiscal rules and implementing structural tax reforms that fulfil electoral promises.
On the fiscal front… the government aims to reduce the deficit to below 3% of GDP by 2026, which contrasts with earlier speculation that Prime Minister Giorgia Meloni might take a more confrontational stance with Brussels.
- Instead, the budget signals a cooperative approach, positioning Italy as one of the few large EU economies still on track to meet the bloc’s fiscal targets.
- France, by comparison, is set to miss this goal for the foreseeable future, giving Italy a more favourable position within the EU’s economic framework.
The timing also works in Meloni’s favour. Her controversial immigration policy, which involves setting up processing centres in third countries like Albania, has gained traction within the Commission, marking a shift in EU attitudes.
- These developments suggest that Italy is well-placed to continue receiving a lenient approach from Brussels regarding the disbursement of COVID recovery funds.
On the domestic front… the budget allocates significant resources to extend two major tax pledges: a reduction in the ‘tax wedge’ for workers and a simplification of income tax brackets from four to three.
- However, these measures come with trade-offs that could stoke tensions within Meloni’s coalition.
- The Lega’s push to reduce VAT for businesses has been sidelined, and Forza Italia has opposed the plan to raise €3.5 billion by taxing banks and insurance companies.
- Despite these internal challenges, Meloni seems confident that coalition tensions will remain manageable.
A broader trend. This budget highlights a broader trend across Europe, where governments facing fiscal constraints are increasingly targeting ‘excess profits’ from businesses.
- The Italian government’s decision to tax banks reflects this, and we may see similar measures across the EU in the near future, as governments seek to balance fiscal tightening with electoral promises.
- Banks, like oil and gas companies before them, could face further levies as governments look to recoup profits from industries that benefit during crises.
In sum… Italy’s budget positions Meloni as a more cooperative player within the EU while addressing domestic fiscal challenges in a way that keeps her coalition intact, for now.
- The government’s strategy of taxing businesses rather than voters is a calculated move that may become more common across Europe as fiscal pressures mount.
