Italy's 2026 Budget Approved: Key Measures & Reactions

The Italian Senate has given the green light to the 2026 budget with 113 votes in favor, 70 against, and 2 abstentions. The approval concludes a sometimes turbulent parliamentary process and passes the baton to the Chamber for a final vote scheduled for December 30. This fourth budget law under the Meloni government, valued at approximately 22 billion euros, has faced significant tensions, spanning pension reforms and tax amnesties.

Irpef Tax Reductions

A central feature of the budget is the reduction of the second Irpef (personal income tax) bracket from 35% to 33% for 13.6 million taxpayers earning up to 50,000 euros. For contracts renewed in 2024, a 5% preferential tax rate is introduced on salary increases paid from January 1, 2026, extended to incomes up to 33,000 euros, along with a 1% bonus on productivity-related wages.

Changes to ISEE Calculations

The primary residence is excluded from ISEE (Equivalent Economic Situation Indicator) calculations up to 91,500 euros. This threshold increases to 200,000 euros in the capitals of metropolitan cities and rises by 2,500 euros for each child after the first.

New Taxes Introduced

Several new taxes are introduced, including a 2-euro tax on extra-EU packages under 150 euros, a 1% withholding tax on invoices between companies from 2029 (0.5% in 2028), and a doubling of the Tobin Tax. Rates on motor vehicle liability insurance premiums for injuries and assistance rise to 12.5% for contracts from January 1, 2026. Capital gains on cryptocurrencies increase from 26% to 33%, with a preferential rate of 26% for tokens pegged to the euro. Finally, the “rottamazione quinques” allows for the settlement of tax bills from 2000 to 2023 in 54 bimonthly installments with a reduced rate of 3%.

Voucher and Excise Tax Changes

The tax-free threshold for meal vouchers increases from 8 to 10 euros, and progressive increases in excise duties on cigarettes are planned.

Pension Reforms

The budget modifies pension windows and funds for early retirement. The extension of “Opzione Donna” is cancelled, and the possibility of cumulating income from supplementary funds to access early old-age pensions is eliminated.

Funding Adjustments for Early Retirement

Funds for early workers and those engaged in strenuous activities will be progressively reduced: the fund for early workers will reach 190 million from 2034, while that for strenuous activities will decrease to 40 million from 2033. The continuity of the Inclusion Allowance (Adi) is guaranteed, but the first monthly payment in case of renewal will be reduced by 50%.

Support for Minimum Pensions and TFR

From 2026, minimum pension payments increase by 20 euros per month. The obligation to pay TFR (employee severance pay) to the INPS (National Social Security Institute) is extended to companies with at least 50 employees, with expansion from 2032 to companies with 40 or more employees. Automatic enrollment in supplementary pensions for new hires in the private sector will start from July 2026, with the option to opt-out within 60 days.

Corporate Incentives and Tax Credits

Businesses benefit from the extension of hyper-amortization until September 30, 2028, valid for instrumental and intangible assets related to Transition 4.0 and 5.0, with a “Made in Europe” requirement and exclusion of the extra green bonus.

Transition 4.0 Tax Credit

The Transition 4.0 tax credit receives an increase of 1.3 billion, while 532.64 million is allocated for ZES (Special Economic Zones) in Southern Italy for those who have already submitted applications. Insurance companies must pay an advance of 85% of the contribution to the NHS (National Health Service) on motor vehicle and watercraft insurance premiums.

Financial Sector Contributions

The financial sector will contribute over 12 billion in tax coverage. For banks, the deductibility of losses decreases from 43% to 35% in 2026 and from 54% to 42% in 2027. The IRAP (Regional Tax on Productive Activities) increases by 2 percentage points for banks and insurance companies, with a deductible of 90,000 euros and exclusion of SIMs (securities brokerage firms), SGRs (asset management companies), and industrial holdings.

Dividend Tax Threshold

The tax exemption threshold for dividends decreases to 5% or a minimum amount of 500,000 euros.

Other Measures

Officials from the Ministry of Economy and Finance (MEF) can participate in the supervisory bodies of investee companies, while the gold reserves of Bankitalia (Bank of Italy) are defined as the property of the “Italian People.”

Housing and Social Measures

The Piano Casa (Housing Plan) receives 200 million for 2026-2027, while the flat-rate tax on short-term rentals remains unchanged: 21% for the first property, rising to 26% for the second, and becoming business income from the third. For schools, 20 million is allocated for school books and a contribution of up to 1,500 euros for families with an ISEE up to 30,000 euros.

Social Protection Funding

For social protection, the law allocates 7 million against violence against women and 2 million for the fund for those who are blamelessly in arrears.

Funding for Security and Culture

Forty million is allocated for insurance policies for law enforcement and firefighters, and another 40 million to the Sports Fund managed by CONI (Italian National Olympic Committee) and Sport e Salute. The Cinema and Audiovisual Fund will face cuts of 90 million in 2026 and 200 million from 2027, while RAI (Italian public broadcasting company) will see reductions of 10 million in 2026.

Defense Measures

For defense, the Ministries of Defense and Infrastructure will identify strategic projects and areas to strengthen the national production of armaments and weapons systems.

Local Authority Amendments

The budget introduces 63 amendments for local authorities, improving flexibility on debt, mortgages, and the management of free surpluses. Advances to municipalities increase from 10 to 20 years, and standard health requirements and assignments of the control room for the water crisis are extended. The regularization of temporary staff in the Special Reconstruction Offices is also planned.

Controversial Measures Removed

Several controversial measures have been removed, including arrears for underpaid workers, revolving doors in the Public Administration, out-of-role placements for magistrates, Covip regulations, tax amnesty, the sale of cannabis light, and an increase in the cash threshold to 10,000 euros.

Reactions to the Budget

Reactions to the budget have been varied. Giorgio Salvitti (FdI) highlighted the reduction of taxes on labor by “43 billion” and defined the budget law as a “different photograph from the self-harming narrative of the left,” also citing the increase in investments in healthcare and the improvement of the purchasing power of families. Carlo Calenda (Azione) spoke of shared prudence but criticized the lack of “a strategy,” while appreciating the reintroduction of Industry 4.0 and the financing of healthcare. Matteo Renzi (IV) defined the maneuver as “ugly without a soul” and “mediocre like Giorgetti,” with ironic references to the concerts of Baglioni and Mike Bongiorno.

"The choices of the government aggravate inequalities and penalize women, young people and more fragile workers" kata Francesco Boccia (Pd).

"Scomodo" kata Maurizio Gasparri (FI), expressing gratitude to Giorgetti for his work.

Massimiliano Romeo (Lega) asserted that the budget represents "one smacco for the eurolirici."

Key Numbers

The budget’s passage marks a key moment for Italy’s economic policy, setting the stage for financial strategies and debates in the coming year.

Timeline of Key Measures

Here's a look at when some of the key measures are scheduled to take effect:

Breakdown of Fund Allocations

Changes in Deductibility for Banks and Insurance

Pension Fund Amounts Over Time (Millions of Euros)

Key Amendments for Local Authorities

• Improved flexibility on debt and mortgages
• Better management of free surpluses
• Advances to municipalities increased from 10 to 20 years
• Extension of standard health requirements
• Extension of assignments for the control room for the water crisis
• Regularization of temporary staff in Special Reconstruction Offices

Fiscal Impact from the Financial Sector (Billions of Euros)