Italy's 2026 budget bill was approved by parliament Tuesday after it passed a confidence test in the Lower house and was voted into law by 216 votes to 126 and three abstentions and following many rows and much wrangling, including within the coalition supporting Premier Giorgia Meloni's executive.
The bill, which features around 22 billion euros in new measures, including 3.5 billion added in a late government amendment, by law had to get the definitive green light before the deadline of New Year's Eve, or else a provisional and emergency financial administration would have been triggered.
The budget had caused tension within the ruling coalition with changes affecting the requirements for people to be able to start taking their State pension early causing outrage, including from Economy Minister Giancarlo Giorgetti's own League party.
These issues were ironed out but unions and opposition parties have continued to lambast the budget, saying it does not do enough to boost growth or address the needs of the national health system, among other things.
It has also been criticised for raising defence spending in line with Donald Trump's demands on NATO, and hiking diesel fuel duties, allegedly reneging on a key Meloni pre-election pledge before she came to power in October 2022.
One of the headline measures of the package is the cut to the second band of the Irpef income tax for earnings of between 28,000 and 50,000 euros from a 35% tax rate to 33%. It also includes extra levies on banks and insurers worth around 4.4 billion euros to help pay for the new measures.
The government's room for manoeuvre is limited as it is seeking to get the nation's budget deficit-to-GDP ratio below the 3% threshold to exit the EU excessive-deficit procedure.
The European Commission said that it expects Italy to end 2025 with a deficit-to-GDP ratio of 3%, adding that this should come down to 2.8% in 2026.
IMF Managing Director Kristalina Georgieva hailed the way Premier Meloni's government has handled Italy's public finances earlier this month, saying the nation has become "an anchor of stability in Europe".
"Over the last two years it has achieved results that go beyond expectations, especially on deficit reduction," she said in an interview with state broadcaster Rai's Tg1 news.
"Now the markets look at Italy differently and so you are paying less interest on your debt." Giorgetti has said the government has done things that "seemed impossible" with its 2026 budget bill.
"What I'd like to stress is that we've addressed issues that seemed almost impossible," Giorgetti told reporters in the Upper House.
"Taxing (collective) contractual (salary) increases by just 5% of was something the unions had always called for, and we did it for lower-income employees.
"I believe taxing productivity earnings at 1% is also symptomatic of the direction we need to go in.
"So, this truly positive outcome demonstrates once again how the entire government supports the approach we started three years ago".
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