Italy’s far-right government, led by Prime Minister Giorgia Meloni, has approved a budget for 2025 worth approximately €30 billion ($33 billion). The budget, which still requires parliamentary approval, includes significant measures aimed at supporting the country’s strained public services and reducing the deficit while avoiding new taxes on ordinary citizens. One of the most controversial aspects of the budget is a newly introduced levy on banks and insurance companies, expected to raise around €3.5 billion.
The budget was finalized by ministers in a late-night cabinet meeting on Tuesday, narrowly meeting the European Union’s deadline for submission. The approval of the budget marks a crucial step for the government as it navigates a complex economic landscape. Italy, the third-largest economy in the Eurozone, faces ongoing pressure to balance electoral promises of tax cuts and public spending with the EU’s strict fiscal rules.
Prime Minister Meloni emphasized that this new levy on financial institutions is designed to fund critical public services, including the country’s overstretched healthcare system, which has faced significant challenges, especially in the wake of the COVID-19 pandemic. In a post on X (formerly Twitter), she reassured citizens that “as we promised, there will be no new taxes for citizens.”
The government expects to raise €3.5 billion through a temporary levy on Italy’s banks and insurance companies. Although details of the levy have not been fully disclosed, it is likely to involve the removal of certain tax deductions for lenders, including deferred tax assets. There may also be increases in taxes on bankers’ stock options, a move that has been criticized by the financial sector but is intended to curb what the government sees as excessive profiteering in the wake of rising interest rates.
Finance Minister Giancarlo Giorgetti, addressing the press on Wednesday, downplayed concerns over the impact of the levy on the financial sector. He referred to the levy as a “sacrifice” rather than a windfall tax, a term that has garnered negative connotations due to previous failed attempts to tax financial institutions.
“Someone would call it an extra profit tax; I call it a sacrifice,” Giorgetti said, signaling the government’s determination to push forward with the measure, despite the potential market consequences.
The new levy follows an earlier attempt by the Meloni government to impose a 40% windfall tax on banks. That effort collapsed last year after sparking a sharp sell-off in Italian banking stocks, forcing the government to backtrack. In contrast, the current plan has been carefully crafted to avoid destabilizing the financial markets. Vice-Premier Antonio Tajani assured the public that this new contribution from banks would “not frighten the markets,” suggesting a more measured approach this time around.
Italy’s public finances are a constant concern for both the government and the EU. With a public debt nearing €3 trillion, Rome is under significant pressure from Brussels to keep its deficit under control. Under the EU’s fiscal rules, member states are required to limit their budget deficits to 3% of GDP. Italy, however, has consistently exceeded this threshold and is now subject to special monitoring by the European Commission.
The newly approved budget forecasts a widening of the deficit to 3.3% of GDP for 2025, up from an estimated 2.9% this year. This increase will provide some room for the government to fulfill its campaign promises, such as tax cuts for middle- and low-income earners and increased social spending, while still attempting to bring the deficit back under control over the longer term.
Minister Giorgetti has been walking a tightrope, attempting to balance the government’s need to reduce the deficit with its electoral pledges. His task has been complicated by external pressures, such as the EU’s close monitoring of Italy’s fiscal health and the growing costs associated with public services, particularly healthcare.
In addition to the new financial levy, the 2025 budget includes a “spending review,” which will require Italian ministries to tighten their belts and propose significant spending cuts. This measure reflects the government’s need to find savings in a range of public sector budgets while avoiding the introduction of new taxes on citizens.
The spending review is expected to yield additional resources for the state, although the details of where cuts will be made are not yet clear. This initiative is part of a broader effort by the government to streamline public administration and ensure more efficient use of funds.
At the same time, the budget includes permanent reductions in income tax and social contributions for middle- and low-income earners, which were central to Meloni’s electoral platform. These tax cuts are intended to provide relief to working families struggling with rising living costs, while also stimulating economic activity by increasing disposable incomes. However, the effectiveness of these measures in promoting growth remains to be seen, especially in a context of global economic uncertainty.
One of the major beneficiaries of the new funds generated by the bank and insurer levy will be Italy’s healthcare system, which has been grappling with significant underfunding and inefficiencies. Italy’s public healthcare system, known as the Servizio Sanitario Nazionale (SSN), has faced criticism for long waiting times, shortages of medical staff, and deteriorating infrastructure, all exacerbated by the pandemic.
The injection of new funds is expected to address some of these issues, though experts caution that deeper reforms may be necessary to ensure the long-term sustainability of the healthcare system. The healthcare sector, like many other areas of public service, has seen rising costs in recent years, driven by an aging population and increasing demand for medical services. The €3.5 billion from the levy may provide temporary relief, but more substantial investments and structural changes will likely be needed to resolve the systemic problems facing the SSN.
The submission of Italy’s budget to the EU is a key moment in the ongoing relationship between Rome and Brussels. Italy’s far-right government has had a complicated relationship with the EU, particularly when it comes to economic governance. Meloni’s administration has often portrayed itself as a defender of national sovereignty against what it sees as the overreach of European institutions, yet it must also navigate the economic realities of being part of the Eurozone.
The EU has been closely monitoring Italy’s finances, especially given the country’s high levels of debt. While the budget deficit forecast of 3.3% for 2025 exceeds the EU’s 3% threshold, the government has made assurances that this will be a temporary measure to support growth and social spending. The European Commission is expected to review Italy’s budget and issue its recommendations in the coming weeks.
The government’s strategy of using a targeted levy on banks and insurers, combined with a spending review, could help alleviate some of the EU’s concerns about fiscal discipline. However, Italy will still need to demonstrate a clear path toward reducing its debt over the longer term, or risk facing stricter fiscal oversight from Brussels.
Domestically, the 2025 budget has sparked a wide range of reactions from political parties and stakeholders. Supporters of the government have praised the budget for delivering on key electoral promises, particularly the tax cuts for middle- and low-income earners. The move to tax banks and insurers has also been welcomed by some as a fair way to redistribute the gains made by financial institutions during a period of rising interest rates.
However, critics argue that the budget does not go far enough in addressing Italy’s deep-seated economic challenges. The opposition has raised concerns about the reliance on temporary measures, such as the financial levy, to fund long-term spending commitments. There are also fears that the spending cuts required by the “spending review” could undermine essential public services, particularly in areas like education and infrastructure.
Moreover, Italy’s business community has expressed unease about the potential impact of the new levy on banks and insurers. While the government insists that the measure will not harm the financial markets, there are concerns that it could dampen investor confidence and lead to reduced lending by banks, potentially stalling economic growth.
As Italy moves forward with its 2025 budget, the government faces significant economic and political challenges. The decision to widen the deficit and introduce a new financial levy reflects the difficult choices that the government must make as it seeks to balance fiscal discipline with social spending and economic growth.
Prime Minister Meloni and her cabinet are navigating a precarious path, with the need to meet the expectations of both domestic voters and European institutions. How effectively the government manages these competing pressures will be critical to Italy’s economic prospects in the coming years.
With the final parliamentary vote on the budget expected by the end of the year, all eyes will be on how the government’s plans unfold and whether they succeed in stabilizing Italy’s economy while addressing the needs of its citizens.
