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EXPLAINED: What is Italy doing to cut the rising cost of living?

Amid soaring inflation and price rises, the Italian government has announced new measures to help families and businesses keep costs down. Here's what you need to know.

EXPLAINED: What is Italy doing to cut the rising cost of living?
An extended discount on petrol and diesel at the pump is among measures promised by parties expected to form Italy's new government. Photo by MIGUEL MEDINA / AFP

Italy approved a much-anticipated aid decree on Thursday, August 4th, bringing a new round of state funding intended to tackle the country’s most critical issues: from the rising cost of living and sky-high inflation to the energy and supply crisis. 

READ ALSO: Fuel tax cut and help with energy bills: Italy approves inflation aid package

The ‘aiuti bis’ aid package, worth around 17 billion euros ($17.4 billion), likely marks the last major act by outgoing prime minister Mario Draghi before an early general election next month.

The funding is seen as badly needed after inflation hit 8 percent in Italy in June – the most severe spike the country has experienced since 1986.

After weeks of speculation about exactly which measures may or may not be included in the decree, we now know it contains everything from an extension to the fuel duty cut to more help with energy bills for those on lower incomes.

Here’s what you need to know about the latest measures intended to keep the cost of living under control.

Extension to fuel duty cut 

The current discount on fuel duties is to be extended again to September 20th, though the value of the discount will drop from 30 to 25 cents. 

The discount was recently extended to August 21st but the government decided to further prolong the incentive in a bid to ease the blow that record fuel prices have dealt to consumers and businesses.

The cut was initially introduced as far back as March when the average prices at the pump for petrol and diesel both exceeded the two-euro mark.

Help with energy bills

Measures introduced in the first half of the year to help lower-income households and vulnerable people pay rising energy bills will be extended under the new decree.

It extends an existing government discount on gas and electricity bills for a further three months, until the end of 2022, as well as reducing system charges.

READ ALSO:

Italy’s tax on the ‘excess profits’ of energy companies has meanwhile been extended to June 2023 after the government reportedly received fewer payments than expected.

Tax cut for employees

Workers earning a gross income of under €35,000 are eligible for a two percent tax saving, amounting to a small monthly ‘pay rise’ until the end of this year.

“Already in the budget law we reduced social contributions by 0.8 percent; for the second half of the year this reduction goes up to 2 percent, as we’re now adding 1.2 percent”, said Economy Minister Daniele Franco at a press conference on Thursday.

As the tax relief lasts until the end of the calendar year for a six-month period, the July deduction will be retroactive.

New aid measures announced on Thursday are hoped to boost Italy’s consumer spending power as the cost of everyday goods rises. Photo by ANDREAS SOLARO / AFP

Those earning €35,000 can expect to save around a further €30 per month (1.2 percent of a monthly salary of €2,692 – most Italian salaries are paid out over 13 rather than 12 months to give employees a tredicesima Christmas bonus).

To find out how this may apply to you, it’s advisable to speak to an accountant or your local Italian tax agency (Agenzie delle entrate) office.

More funding for mental health treatment

The new decree will also enhance the existing ‘psychologist bonus’ (bonus psicologo) by allocating an additional 15 million euros to the measure. This will bring the total amount of funds available for the bonus to 25 million euros. 

The bonus was officially introduced at the end of July to help make mental health services more affordable, amid a pandemic-induced crisis in Italy.

All individuals with an Isee (a calculation of relative household income and wealth) lower than 50,000 euros will be eligible to receive a 600-euro voucher, which they’ll be able to use when seeing professionals listed on Italy’s official register of psychologists.

See more information about claiming the bonus in a separate article here.

Discount on public transport tickets

The government will allocate a total of 101 million euros to funding its ‘transport bonus’ (bonus trasporti); 22 million more than the original amount.

The bonus takes the form of a one-time 60-euro discount to be used on the purchase of monthly or yearly tickets for local transport services.

It will be available from September 2022 to all pensioners, students, and employees with an Isee of up to 35,000 euros.

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ENERGY

Which households in Italy will benefit from falling gas prices?

Gas prices are returning to lower levels but which Italian households will see the benefits on their utility bill? Here’s what you need to know.

Which households in Italy will benefit from falling gas prices?

Italy’s energy regulator Arera announced on Thursday that gas bills had dropped by an average 34 percent in January, marking a change in trend after increases recorded in December and November.

Arera said the fall in prices was largely driven by lower wholesale gas prices, but was also aided by “lower supply costs” and the government’s three-month suspension of gas-related standing charges.

But not everyone in the country will feel the effects of the price change.

The decrease reported by Arera will benefit customers on a ‘protected’ or maggior tutela contract, where rates are directly determined by Arera as opposed to private suppliers – this applies to approximately 41.5 percent of Italian households.

READ ALSO: EXPLAINED: When can you turn your heating on in Italy this winter?

For customers with private suppliers, who are instead on mercato libero (free market) contracts, any change in price will depend on the contract itself, particularly on whether it’s based on a fixed or variable rate.

Gas prices within the mercato libero (or ‘free market’) are determined by private companies, so variations in Arera’s tariffs do not directly affect these contracts.

Gas stove

Variations in Arera’s gas tariffs do not directly affect free market clients. Photo by Ida Marie ODGAARD / Ritzau SCANPIX / AFP

Some ‘hybrid’ contracts from private suppliers index their gas prices to Arera’s rates, and customers with this type of contract are likely to see a reduction in fees.

That said, the European market registered comparatively low gas prices in January – gas cost an average of 0.74 euros per cubic metre last month, down from the average 1.25 recorded in December. This may very well result in lower gas bills for free market customers in Italy.

But overall, despite January’s decrease, gas tariffs remain much higher than they were before the start of the energy crisis.

READ ALSO: Heating homes: What are Italy’s rules on using fires and wood-burners?

The average Italian household on a contratto tutelato will still spend 1,769 euros on gas bills alone in the next 12 months (from February 2022 to January 2023) – a whopping 36-percent increase against the same period of time last year.

National consumer group UNC warned against the optimism expressed by several government figures on Thursday, saying while “families may now take a breather”, bills are still “unsustainable for too many Italians”. 

UNC also urged the government to extend the three-month suspension of standing charges for another three months when it expires at the end of March.

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