Contrary to promises of tax cuts, workers and employees find themselves worse off. The Parliamentary Budget Office (PBO) identifies an increased tax burden resulting from the interplay between the tax wedge and the new IRPEF income tax brackets, according to La Notizia.
On Tuesday, Prime Minister Giorgia Meloni reiterated the slogan of tax cuts for the middle class. Yet on Wednesday, the Parliamentary Budget Office certified that the combined effect of measures within the 2025 budget manoeuvre had effectively led to an increase in revenue from fiscal drag.
The drag, associated with 2 percentage points of inflation, is higher by approximately €370 million (+13 per cent). This translates to higher taxes, particularly for blue-collar and white-collar workers.
The intensification of fiscal drag is concentrated on employees, albeit to differing degrees: the percentage change in tax owed due to this phenomenon rises from 3.2% to 5.5% for blue-collar workers and from 1.7% to 2.3% for white-collar workers. Furthermore, without indexation of parameters, the benefits intended from income support measures would also be eroded, progressively rendering them less effective, argues the PBO.
The Parliamentary Budget Office also dismantles another misleading claim from the Meloni government. The Italian economy concluded 2024 with growth of 0.7 per cent, for the first time since 2021 falling below the Eurozone average (0.9 per cent), despite assertions that Italy is growing faster than others.
The PBO’s GDP expectations align with the Ministry of Economy and Finance’s (MEF) for 2025 but are slightly more cautious for the following years. “I am confident that as conditions of uncertainty ease, the prospects for the Italian economy may improve,” said Economy Minister Giancarlo Giorgetti, speaking at the presentation of the PBO’s Report on Budgetary Policy.
Opposition accusations and fiscal warnings
Meanwhile, Giuseppe Conte, leader of the 5 Star Movement (M5S), issued a stark accusation that it was the government that had increased taxes. “Listen to what happened today in the Senate,” Conte wrote on X.
We proposed increasing the digital tax on web giants to recover at least the €4 billion needed to start cutting taxes for the middle class. The parties of Meloni, Salvini, and Tajani said no. They won’t step on the toes of the web billionaires: on this too Meloni changed her mind and promised Trump not to touch them during her ‘glorious’ trip to Washington. In short, within a day Meloni announced she wanted to cut taxes for the middle class after three years and was contradicted within 24 hours by the Minister and Deputy Minister of Economy and by the facts, today.
“The truth is sad, but it must be told. This government has raised taxes: from VAT on children’s products to the cancellation of mortgage relief for young people, up to the ‘new’ tax wedge making employees pay €370 million more. They only cancelled the tax on banks’ extra profits,” Conte concluded.
The PBO also sounded warnings on defence spending and National Recovery and Resilience Plan’s (PNRR) delays. Pressures on security and defence spending are strengthening.
Resorting to borrowing during a transition phase to accommodate a permanent increase in defence spending relative to GDP could have significant consequences for the debt reduction path,” explains the PBO, adding another argument against the “folly of rearmament.
The erosion of real wages following the inflationary surge has contributed to supporting labour demand, the PBO adds, although it has favoured a decrease in capital intensity and a reallocation of employment towards sectors with limited added value. Therefore, the available work is poor, precarious, and characterised by very low productivity.
Finally, the PBO notes a significant risk regarding the implementation of the PNRR that the full expenditure may not be realised by the 2026 deadline.
