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Here are the main things included in Italy’s ‘people’s budget’

From an amnesty on unpaid taxes to a universal basic income, here's what you need to know about Italy's 2019 budget plans.

Published: 17 October 2018 09:23 CEST
Here are the main things included in Italy's 'people's budget'
From L to R: Deputy Prime Minister Matteo Salvini, Prime Minister Giuseppe Conte and Deputy Prime Minister Luigi Di Maio present Italy's draft budget. Photo: Filippo Monteforte/AFP

Italy's populist coalition has submitted its draft 2019 budget to the European Commission, forecasting an increase in the public deficit to 2.4 percent of gross domestic product.

The increase is essentially due to what the government calls its “people's budget”, a series of spending, pension and tax changes that will cost €37 billion, of which €22 billion will be paid for by expanding the deficit.

Here are the main points:

Pension reform

The budget modifies the previous Fornero pension law to make it easier to retire earlier.

It introduces the “100 quota”: a state pension if the number of years of contributions paid plus age equals 100. Around 400,000 people will then be able to retire at 62, having worked at least 38 years. The law currently sets retirement at 65.

Women will still be able to retire at 58 if employed and at 59 if self-employed, provided they have worked for 35 years.

The reform will come into effect in February and cost €7 billion in 2019, according to Deputy Prime Minister Matteo Salvini of the League party.

The government hopes that more people retiring will provide more jobs for the young, with unemployment for those aged 15-34 at nearly 20 percent.

Citizen's income

The budget also provides for a universal basic income, the populist Five Star Movement's (M5S) main campaign promise.

The monthly payment of €780 will be made to the least well-off and hopes to help people get back on the job market. It is only for Italians or foreigners who have been legally resident for at least five years.

The budget also provides for a “citizen's pension” which raises the minimum pension to €780 a month, “returning dignity to pensioners”, according to M5S leader Luigi Di Maio.

The two measures will affect around 6 million people and cost €9 billion, with another billion to be spent on improving job centres.

Tax amnesty

The two ruling parties agreed to a tax amnesty after a heated debate, with the anti-establishment M5S having felt such a measure would favour the rich and be against its ideals.

It will affect anyone who has not paid, declared or under-declared taxes. The treasury expects to reap €2.2 billion from people thus putting their books in order in 2019.

Flat tax

A flat-rate tax of 15 percent will be applied to more than one million self-employed and artisans with a turnover of under €65,000.

Bank victims fund

A €1.5 billion fund will be created to compensate small investors who have lost money because of bank bankruptcy or mismanagement.

Public investments

Technocrat Prime Minister Giuseppe Conte plans to invest another €15 billion in “the biggest Italian public investment plan ever” over the next three years, on top of €38 billion already planned over the next 15 years.

No VAT hike

The previous budget set an automatic increase in value added tax, considered a tax on the poor. The government will cancel the automatic hike, slashing €12.5 billion in annual revenue.

Spending cuts on migrants and lawmakers

The budget aims to slash the cost of running ministries by €500 million a year. So-called “golden” pensions for lawmakers of over €4,500 net a month will also be reduced, saving the government around €330 million a year, according to M5S sources.

The government will reduce spending on managing and housing migrants by another €500 million.

It will also raise taxes on gambling and increase privatisations, generating a projected €640 million next year. 

READ ALSO: Italy's budget clash with Brussels: What you need to know


Photo: Gerard Cerles/AFP

By AFP's Céline Cornu

For members

ECONOMY

Who will pay less income tax under Italy’s planned reforms?

Italy is planning an overhaul of the tax system meaning new income tax rates for many - but who will benefit the most, and least?

Published: 17 March 2023 13:41 CET
Who will pay less income tax under Italy's planned reforms?

Italy’s government on Thursday submitted the text of a long-awaited tax reform bill which ministers say will be the first step in a sweeping overhaul of the system planned by 2027

As previously reported by The Local, the bill will introduce a raft of major tax changes aimed at gradually reducing Italy’s notoriously high tax burden and making investment in Italy more appealing. 

The plan includes a substantial change to Italy’s main income tax, Irpef (Imposta sui Redditi delle Persone Fisiche), with the number of  tax brackets dropping from four to three.

READ ALSO: Flat tax for all? Italy announces plan to overhaul tax system

This change is expected to mean a new tax rate for many workers in Italy starting from next year. But who’s going to benefit the most from the changes? 

Here’s what we know at this point. 

Irpef, which applies to all employees, many self-employed workers (regular partita Iva holders, but not those on the flat tax rate) and pensioners, currently counts four brackets, which are arranged as below:

  Income (annual) Irpef rate
First bracket Up to 15,000 euros 23 percent
Second bracket Between 15,000 and 28,000 euros 25 percent
Third bracket Between 28,000 and 15,000 euros 35 percent
Fourth bracket Over 50,000 euros 43 percent
     

The coming tax reform will reduce the number of tax brackets down to three, with the second and third bands being merged into a single one.

The tax rate for the lowest earners is expected to remain unchanged at 23 percent (for those earning 15,000 euros a year or less).

The tax rate should also stay the same for the highest earners taking home 50,000 euros a year or more, at 43 percent.

But middle earners who are currently in the second or third bracket may end up paying more or less tax – and it’s still unclear exactly what will happen. 

READ ALSO: The tax changes in Italy to know about in 2023

While Thursday’s announcement confirmed the number of tax bands will drop to three, the newly published bill didn’t specify what tax rate the new band would carry nor confirm how rates in other bands would be readjusted. 

However, Meloni’s cabinet is reportedly considering two options. 

First scenario

Under the first, and currently more likely, option, the new middle bracket will mean all taxpayers earning between 28,000 and 50,000 euros a year will pay a 33-percent rate.

Rates for the first and last brackets would remain the same.

This would mean all those who are currently in the second (income between 15,000 and 28,000) and third bands (28,000 to 50,000) would see their tax rate drop by two percent next year and subsequently benefit from sizable cuts to their Irpef payments. 

  Income (annual) Irpef rate
First bracket Up to 28,000 euros 23 percent
Second bracket Between 28,000 and 50,000 euros 33 percent
Third bracket Over 50,000 euros 43 percent
     

Second scenario

Meloni’s government is also considering a second scenario, with a 27-percent rate for a larger middle band – an option that would be much more costly to the state, and so seems less likely.

This would mean people currently in the second bracket (15,000 to 28,000) will see their tax rate increase by two percent, while those in the third bracket (28,000 to 50,000) would benefit from a whopping eight-percent cut. 

Rates for the first and last brackets would again remain the same.

  Income (annual) Irpef rate
First bracket Up to 15,000 euros 23 percent
Second bracket Between 15,000 and 50,000 euros 27 percent
Third bracket Over 50,000 euros 43 percent
     

Which path will the government go down?

While it was hoped that the bill’s text would clarify what rate the new band would carry, there are currently no details as to which option the government intends to go with.

That said, the first option seems to be the more likely one at this point in time, not least because implementing it would reportedly cost state coffers around 6 billion euros, whereas the second option would present the treasury with a 10 billion-euro bill.

Further information over which route the government will ultimately go down should emerge in the coming weeks as the bill goes through parliament. 

And even the possibility that Meloni’s executive might end up adopting an Irpef system other than the two described above cannot be ruled out at this time.

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