Italy Considers Tax Cuts and Spending for 2027 Budget

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Italy Considers Tax Cuts and Spending for 2027 Budget

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Italy’s government is in the process of drafting its 2027 budget law, with various tax and spending proposals under consideration. Among the most discussed measures is a potential reduction in the taxation of the “tredicesima,” or 13th-month salary, which is a mandatory extra payment for most Italian employees, typically received in December. The aim is to introduce a substitute tax lower than the standard personal income tax (IRPEF), with some proposals even suggesting a total tax exemption for this payment.

Another significant proposal is a cut to the IRPEF for middle-income taxpayers. The government is looking to extend the 33% tax rate to incomes up to €60,000, an increase from the current threshold of €50,000. This would mean that the income bracket between €50,000 and €60,000 would be taxed at 33% instead of the current 43%, potentially benefiting approximately 3.3 million taxpayers with a maximum annual saving of around €1,000 for those earning €60,000 or more.

For self-employed individuals, an incremental flat tax is being considered, which would apply a substitute tax to the portion of income that represents an increase compared to previous years. One proposal suggests a preferential rate of 5% on these income increases. Additionally, there is discussion about raising the revenue threshold for the flat-rate tax regime (Regime Forfettario) from the current €85,000 to €100,000.

The budget also includes potential changes to housing incentives. While current home renovation bonuses offer a 50% tax deduction for primary residences, these rates are set to decrease to 36% in 2027. There are discussions about new measures to facilitate access to housing, especially for young people, and tax relief related to rent, such as a possible reduction in VAT on rent for young people or a rent bonus of up to €500 per month for separated parents.

Pension reforms are also on the agenda, with current legislation indicating a one-month increase in pension eligibility requirements in 2027 due to life expectancy adjustments. The government is exploring options to prevent this increase, which is estimated to cost approximately €1.1 billion. Additionally, pension checks are expected to see a larger automatic increase in 2027, potentially between 2.8% and 2.9%, based on ISTAT’s August data, which would offer retirees a partial buffer against rising living costs.

The precise scope and funding for these measures will largely depend on Italy’s economic performance and public finance figures. ISTAT’s official revisions on national accounts, expected on September 22, are anticipated to provide crucial information regarding the available budgetary margins for the 2027 budget. The European Commission has forecasted Italy’s real GDP to grow by 0.6% in 2027. Deputy Prime Minister Matteo Salvini has called for an increase in the budget deficit by at least €20 billion for the 2027 budget.

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