ROME (Reuters) – Italy’s Senate passed the government’s 2025 deficit-reducing budget on Saturday, giving parliament final approval for the package to become law shortly before a year-end deadline.
Prime Minister Giorgia Meloni’s third budget aims to reduce next year’s fiscal deficit to 3.3% of gross domestic product (GDP) from a target of 3.8% in 2024, while cutting taxes for low- and middle-income groups.
Italy is under orders from the European Union to reduce its deficit after huge overruns in 2022 and 2023, and has pledged to reduce it below the EU ceiling of 3% of GDP in 2026.
However, public debt, proportionally the second highest in the eurozone, is forecast to rise until 2026 due to the delayed effect of expensive government subsidies for energy-saving building works – the so-called “superbonus”.
The Ministry of Finance predicts that the debt will rise from 134.8% of GDP last year to 137.8% in 2026, before declining slightly.
The right-wing government won the final vote on the budget after the second reading in the upper house of the Senate by 108 to 63. It was approved by the House of Representatives last week.
The package raises next year’s deficit to 3.3% of GDP from an estimated 2.9% based on current trends, borrowing an additional 9 billion euros ($9.4 billion) to finance tax cuts and some other expansionary measures.
The eurozone’s third-largest economy has stagnated in recent months and is now expected to grow at about half the government’s official target of 1% this year.
The slowdown might have been even sharper if tens of billions of euros from the European Commission as part of the EU Recovery Fund after COVID-19 did not regularly arrive in Rome’s coffers.
However, Rome’s fiscal consolidation efforts could be helped by falling borrowing costs.
The parliamentary budget watchdog forecast this month that yields on Italian government bonds would be significantly lower than projected by the government, with savings of 1.7 billion euros next year and 17.1 billion euros by 2029.
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