On Tuesday evening, Italy’s Council of Ministers approved the 2025 budget law, outlining significant changes to public spending and revenues for the upcoming year. The bill will be submitted to Parliament by October 20 and, while adjustments may be made during the legislative process, the government has already laid out its core priorities. The total cost of the measures is projected to be €30 billion, with a combination of spending cuts, tax increases, and additional debt to finance the package.
The bulk of the €30 billion will fund a series of tax cuts and wage boosts, alongside other social welfare initiatives. Notably, €21 billion will come from fiscal tightening, while €9 billion will be covered through deficit spending, increasing Italy’s public debt. If further measures are introduced in 2026 and 2027, the overall cost could rise to €35 billion and €40 billion, respectively.
The centerpiece of the budget includes a reduction of personal income tax (IRPEF), maintaining a three-bracket system that lowers the tax rate for middle-income earners. For incomes up to €28,000, the rate remains at 23%, while the next bracket—€28,000 to €50,000—may see a further reduction from 35%, contingent on additional fiscal coverage. This restructuring will cost an estimated €17 billion of the overall budget.
Another significant element is the cut to payroll taxes (the so-called “tax wedge”), aimed at benefiting low- and middle-income workers. The government will introduce a more progressive system to ensure workers just above the threshold for tax relief do not lose their benefits entirely. This adjustment, alongside wage increases for public sector employees, is designed to support nearly 14 million employees, improving their take-home pay by about €100 per month.
Healthcare spending is also slated for a modest increase, with an additional €900 million to support the hiring of medical personnel. This supplements a previously legislated €4 billion boost for the sector, bringing total healthcare expenditure to €142 billion in 2025. Although this remains below the European average as a percentage of GDP, it is seen as a necessary step to address Italy’s chronically underfunded healthcare system.
The budget also includes measures aimed at supporting families, such as a new €1,000 bonus for low-income households with newborns. However, details on broader tax deductions and family benefits are still under discussion. A proposed “family quotient” system could reshape deductions based on household size and income, potentially reducing taxes for larger families while imposing higher burdens on single individuals and wealthier households.
In terms of revenue, the government is targeting several sectors, including banks and insurance companies, with a special contribution from entities that have benefited from rising interest rates. This measure is expected to generate €3.5 billion over two years. The budget also envisions cuts in ministerial budgets, which will save €3 billion, alongside increased taxes on gambling and adjustments to tax deductions and exemptions for certain industries.
In total, the government aims to raise €21 billion from these measures. However, €9 billion will still need to be financed through deficit spending, which is projected to increase Italy’s deficit to 3.3% of GDP in 2025, down from 3.8% in 2024. This reduction is in line with EU regulations that require member states with excessive deficits to reduce their shortfall by at least 0.5% of GDP each year.
While the final details of the budget will emerge in the coming weeks, the government’s approach reflects a balancing act between fiscal prudence and social support. As the bill moves through Parliament, it remains to be seen whether these measures will achieve the intended balance between stimulating growth and maintaining financial stability.
