Italy’s Cabinet to approve 2025 budget amid tax tensions

Italy’s Cabinet is poised to convene on Tuesday evening to approve the 2025 budget amid ongoing tensions within the ruling coalition regarding a Treasury proposal to raise taxes on banks.

Prime Minister Giorgia Meloni’s government is tasked with securing approximately €25 billion ($27.23 billion) to finance a series of stimulus measures, including income tax cuts and reduced social contributions for middle and low-income earners.

To fund these initiatives, Rome plans to widen next year’s deficit to 3.3 per cent of GDP from an estimated 2.9 per cent, which involves borrowing an additional €9 billion.

The remaining financing will come from spending cuts or tax increases elsewhere in the budget.

The Treasury is currently in discussions with Italian banks, which have seen substantial profits recently, to determine how they can contribute to consolidating public finances.

Economy Minister Giancarlo Giorgetti has suggested that those who can afford it should make sacrifices, while a bank levy has been a topic of contention, leading to volatility in bank shares.

In addition to potential changes to bank taxation, officials are also considering adjustments to stock option taxation for managers and altering rules on deferred tax assets. The government also aims to raise excise duties on diesel and may remove some corporate tax breaks.

Italy remains under an EU disciplinary procedure due to a high budget deficit of 7.2 per cent of GDP last year, well above the bloc’s 3 per cent limit.

The government has pledged to reduce the deficit to 2.8 per cent by 2026, even as its debt, the second highest in the eurozone, is projected to rise to 137.8 per cent of GDP by 2026.