Italy's 2026 Budget Bill Passed Amidst Controversy and Coalition Tension

Italy's parliament approved the 2026 budget bill on Tuesday, following a confidence test in the Lower House. The bill was passed with 216 votes in favor, 126 against, and three abstentions, after extensive debates and negotiations within Prime Minister Giorgia Meloni's coalition government. The budget, which introduces approximately 22 billion euros in new measures, faced a critical deadline to secure approval before the New Year's Eve cutoff. Failure to meet this deadline would have resulted in a provisional financial administration. Tensions arose within the ruling coalition, particularly concerning changes to the eligibility requirements for early state pension access. This aspect stirred outrage, even from members of the Economy Minister Giancarlo Giorgetti's own League party. Despite the resolution of some internal conflicts, labor unions and opposition parties have sharply criticized the budget. They argue that it falls short in promoting economic growth and adequately addressing the national health system's needs, among other concerns. The budget has also faced backlash for increasing defense spending in accordance with the demands of NATO, as well as for raising diesel fuel duties, which some view as a betrayal of pre-election commitments made by Meloni before her assumption of power in October 2022. A notable feature of the budget is the reduction of the second band of the Irpef income tax from a 35% rate to 33% for earnings between 28,000 and 50,000 euros. Additionally, the package includes extra levies on banks and insurers, amounting to around 44 billion euros, aimed at financing these new measures. The government faces constraints as it seeks to lower the nation's budget deficit-to-GDP ratio below the 3% threshold to exit the EU's excessive deficit procedure. The European Commission anticipates that Italy will end 2025 with a 3% deficit-to-GDP ratio, with a further reduction to 2.8% expected in 2026. IMF Managing Director Kristalina Georgieva recently praised Meloni's administration for its management of Italy's public finances, emphasizing that the country has become a pillar of stability in Europe. Georgieva noted that over the past two years, Italy has achieved results surpassing expectations, particularly concerning deficit reduction, leading to lower interest rates on national debt. Giorgetti stressed that the government has addressed issues once deemed nearly impossible, indicating a sense of accomplishment with the 2026 budget bill. He highlighted achievements such as taxing collective contractual salary increases at just 5% for lower-income employees, which had long been a union demand, and the 1% tax on productivity earnings, demonstrating a commitment to the direction they need to take. This budget, while contested, reflects the government's determination to tackle complex financial challenges as they strive to stabilize and improve Italy's economic outlook. Related Sources: • Source 1 • Source 2