Italy is taking bold steps to finance its budget, targeting €3.5 billion ($3.8 billion) from its banking and insurance sectors. This initiative, announced by Prime Minister Giorgia Meloni’s cabinet, aims to fulfill promises made to voters while avoiding new taxes. Instead of imposing additional levies, the government plans to defer tax deductions owed to banks, a move expected to have minimal impact on their profitability.
“True to our word, we will not impose new taxes on citizens,” Meloni stated in a recent post on X (formerly Twitter). The funds will be allocated primarily to healthcare and support for vulnerable populations, although specific collection methods and timelines remain unclear. The Treasury has confirmed the financial sector’s involvement but has yet to provide detailed plans. Finance Minister Giancarlo Giorgetti is set to clarify these details in a press conference scheduled for Wednesday in Rome.
The budget plan, which totals €30 billion ($33 billion) for 2025, was agreed upon just in time to meet European Union scrutiny deadlines. However, it still requires parliamentary approval. This package comes as the government grapples with balancing the urgent need to cut the deficit and the political necessity of fulfilling costly election promises. These include reducing the tax wedge—which is the difference between what workers cost employers and their take-home pay—as well as providing aid to low-income households and small businesses. Additional funding will also go toward increasing defense and healthcare expenditures.
Giorgetti, a member of the League party, which is part of the ruling coalition, emphasized a collective approach to budget sacrifices, stating that all sectors of society should contribute to economic recovery.
Financial Sector Measures Explained
The planned financial measures will involve postponing the absorption of state-guaranteed Deferred Tax Assets (DTAs) on past credit losses, according to insiders. This will freeze their deductibility for two years, with recovery spread out starting in 2027. Analysts, including Citigroup’s Azzurra Guelfi, believe this approach will have a negligible effect on banks’ capital development and overall profitability.
Early trading in Milan saw bank shares largely unchanged, indicating investor acceptance of the plan thus far. League leader Matteo Salvini celebrated the initiative as a “victory” for his party, highlighting the government’s focus on banks as a source of revenue. Previously, the government has criticized banks for profiting excessively in a high-interest-rate environment, with major lenders like Intesa Sanpaolo and UniCredit reporting significant profit increases in recent months.
Lessons from the Past
Despite earlier efforts to tax banks, which faced backlash after causing a major selloff in Italian stocks last year, Giorgetti has committed to avoiding similar pitfalls. Recent discussions with the Italian Banking Association have led to a consensus on how to mitigate potential negative impacts on the financial sector.
Mediobanca analyst Andrea Filtri noted that the approved measure will not impose a tax on extra profits, but instead represent a liquidity strategy, aligning with the banking association’s initial proposals.
In addition to tapping into financial institutions, Giorgetti is also implementing cuts in public administration expenses to raise additional funds. The urgency to improve Italy’s fiscal situation has heightened, especially after being placed under special monitoring by EU officials due to significant budget deficits.
Looking Ahead
Italy is committed to reducing its deficit below the EU’s 3% of GDP threshold by 2026, with plans to start decreasing its substantial debt the following year. Unlike the recent turmoil affecting France, Italy has managed to instill confidence in financial markets, as evidenced by a drop in the spread between Italy’s 10-year bonds and German bonds, reaching the lowest level since March.
As the government rolls out these measures, the focus will remain on balancing fiscal responsibility with the need to support its citizens. With a clear strategy in place, Italy is poised to navigate these challenging economic waters while fulfilling its electoral promises.
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