Italy’s 2025 Budget Passes Senate

ROME (Reuters) – The Italian Senate on Saturday passed the government’s deficit-cutting 2025 budget, granting parliament’s final approval to the package that becomes law just ahead of an end-year deadline.

Budget Goals

Prime Minister Giorgia Meloni’s third budget aims to lower next year’s fiscal deficit to 3.3% of gross domestic product (GDP) from a targeted 3.8% in 2024, while cutting taxes for low and medium income brackets.

Italy is under European Union orders to reduce its deficit following significant overshoots in 2022 and 2023 and has pledged to bring it below the EU’s 3% of GDP ceiling by 2026.

Public Debt Projections

However, the public debt, the second highest in the euro zone proportionally, is projected to rise through 2026, largely due to the delayed financial impact of state subsidies for energy-saving building work, known as the “superbonus.” The Treasury forecasts the debt to climb from 134.8% of GDP last year to 137.8% in 2026, before marginally declining.

Final Vote

The right-wing government won the final budget vote after a second reading in the Senate by 108 to 63. The budget had already been approved by the Chamber of Deputies last week.

The package widens next year’s deficit to 3.3% of GDP from an estimated 2.9%, borrowing an additional 9 billion euros ($9.4 billion) to fund tax cuts and other expansionary measures.

Economic Context

The euro zone’s third-largest economy has stagnated recently, with growth this year projected to be around half of the government’s official 1% target.

This slowdown could have been more pronounced if not for the arrival of billions of euros from the European Commission under the EU’s post-COVID-19 Recovery Fund.

Future Predictions

Rome’s fiscal consolidation efforts might be supported by declining borrowing costs. A parliamentary budget watchdog recently forecast that yields on Italian sovereign bonds will be significantly lower than expected, with potential savings of 1.7 billion euros next year and 17.1 billion by 2029.

($1 = 0.9590 euros)