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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 announced by Italy's government on August 4th, 2022. 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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COST OF LIVING

Italy’s south hit hard by cost of living crisis as election nears

Mario Conte's Salerno soup kitchen serves 140 hot meals every day but as soaring inflation hits Italy's poverty-stricken south, he is struggling to keep up with demand.

Italy’s south hit hard by cost of living crisis as election nears

And with far-right leader Giorgia Meloni promising to abolish a poverty relief scheme if she wins Sunday’s general elections, he fears things will only get worse.

“There will be a flood of people here,” he warned as he handed out food at the San Francesco kitchen, not far from Salerno’s palm-lined seafront, south of Naples.

The eurozone’s third largest economy is suffering a cost-of-living crisis exacerbated by Russia’s war in Ukraine.

READ ALSO: Soaring energy prices push Italy’s inflation to 37-year high

But as usual it is Italy’s south, long plagued by poverty and unemployment which feels it hardest.

“I pay rent, the electricity bill, and then I’ve got nothing left for food,” said 60-year-old Antonio Mela, a former barman who lives with his brother on a 500-euro state pension.

“Everyone is struggling here,” he told AFP, as he took servings of pasta, pork and potatoes, and fruit.

Energy is a major concern in a country reliant on Russian gas, particularly here, in the Campania region.

According to the Italian Poverty Observatory, the region has the greatest number of people struggling to pay electricity and gas bills.

EXPLAINED: How much are energy bills rising in Italy?

Volunteers prepare food at Mario Conte's San Francesco soup kitchen on September 20, 2022 in Salerno.

Volunteers prepare food at Mario Conte’s San Francesco soup kitchen on September 20, 2022 in Salerno. Photo by Alberto PIZZOLI / AFP.

– Citizens’ income –

Rocco Papa, a spokesman for the Catholic Caritas charity which helps run the kitchen, said there was a “chronic” lack of work in Salerno, where one in 13 people are at risk of extreme poverty.

“The bringing together of many factors, the pandemic, the war, has seriously aggravated the situation,” he said.

While this is a familiar story across Europe, Italy, with its low-skilled and rapidly ageing population, is unique.

It was the only EU country where inflation-adjusted wages fell between 1990 and 2020, according to the Organisation for Economic Cooperation and Development (OECD).

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

It is also one of just six EU countries without a national minimum wage, having instead, since 2019, the so-called “citizens’ income”.

Nearly 2.5 million people claim this benefit for the jobless, which works out on average at 550 euros a month, costing the state 8.3 billion euros this year.

The majority – 1.7 million people – live on Italy’s islands or in the south, a region with a large shadow economy and where 10 percent of households live in absolute poverty.

But the benefit has been targeted by fraudsters, and some employers say it makes it impossible for them to find staff. They accuse young people of preferring to pocket easy money for sitting at home.

These payments have become one of the electoral campaign’s most divisive issues, to the point that Meloni’s far-right Brothers of Italy party, which led the last opinion polls, has vowed to ditch the scheme outright.

READ ALSO: Italian elections: The main campaign pledges made by Italy’s political parties

Rocco Papa, a spokesman for the Catholic Caritas charity which helps run Mario Conte's San Francesco soup kitchen, is pictured on September 20, 2022 in Salerno. Conte fears the 140 hot meals his Salerno soup kitchen dishes out daily will not be anywhere near enough, should Italy's poverty relief scheme be scrapped after Sunday's elections.
Rocco Papa, a spokesman for the Catholic Caritas charity which helps run Mario Conte’s San Francesco soup kitchen, is pictured on September 20, 2022 in Salerno. Photo by Alberto PIZZOLI / AFP.

– War on poverty –

“The citizens’ income helped hugely,” 70-year-old Conte said. For a while, many guests stopped coming.

Rising prices have brought new faces to his door, however: from divorced dads to struggling carers, whose badly paid, off-the-books work is no longer enough.

The number of people using soup kitchens in Salerno has doubled over the past few months, while a Caritas-run canteen in Castellammare outside Naples has seen a three-fold increase.

Conte feeds an extra 10 families with young children each morning.

This benefit was the brainchild of the populist Five Star Movement, which swept to power four years ago after winning big in the south.

Now trailing the right in the polls, Five Star has vowed to make the income “more efficient”, to bring in a minimum wage and to tackle the gender pay-gap.

The centre-left Democratic Party (PD) also wants to keep a reformed version of the benefit. It has pledged similar other anti-poverty measures as well as with 500,000 new council houses and free school meals.

READ ALSO: Italy plans to scrap VAT on bread and pasta amid cost of living crisis

– Favouring jobs –

But for Meloni, the citizens’ income is not the solution.

Poverty, she told a rally in Palermo, Sicily this week, “is fought by favouring growth and jobs”.

She proposes instead a benefit for those most at risk: disabled people, the over 60s, and struggling families with small children.

Her right-wing coalition, which brings together the anti-immigrant League and right-wing Forza Italia, has also promised tax cuts to boost growth.

The last available polls suggest Five Star and the Democratic Party’s support for the citizens’ income may once again be winning votes in the south – although not everyone here backs it.

“Young people have to work,” said Mela, as he collected his food from the San Francesco kitchen. “It should be for families, not 30-year-olds.

“And they have to check who’s cheating and who’s not.”

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