MNI: Italy To Use Extra Revenue To Lower Deficit Below 3% GDP

Italy will use higher-than-expected tax revenues to bring its fiscal deficit below 3% of gross domestic product in 2025, compared with the 3.3% target announced in April, as officials drive to exit the European Union’s Excessive Deficit Procedure by as soon as next spring, government sources told MNI. 

This will mark a departure from recent precedent, which has seen Prime Minister Giorgia Meloni’s government and those of her predecessors use unexpected fiscal margin for discretionary spending measures in the current or following year.

Rome should approve an update of its macroeconomic framework from next April on Wednesday containing fiscal data for 2025 and 2026 that it will provide he basis for the budget law draft to be made public in the following weeks.

The Italian treasury has benefited from higher-than-expected revenues due to a resilient labour market, and other factors like nominal GDP growth and lower borrowing costs, sources said.

The primary surplus will also beat expectations at 0.7% of GDP for 2025, sources said, pointing out that it will be the second year in a row in which Italy will register a surplus after years of primary deficits in the wake of the Covid pandemic. (See MNI: Italy Looks For Ways To Spend NGEU Money -Officials)

BUDGET 2026

Italy’s 2026 budget will probably see a cut in the income tax bracket for those earning between EUR28,000 and EUR50,000 per year from 35% to 33%, an official said, noting that the approximate cost of the measure will be around EUR1.2 billion.

It has yet to be decided whether the tax cut will apply to all in the category or whether it will depend on variables including family size and total household income, the official added, noting that the country’s deficit will have to remain below 3% of GDP in 2026 as well.

Discussions over the budget will also cover a potential windfall profit tax on banks, an update of the pensions and retirement system and a fiscal amnesty for citizens.