During a hearing on Italy's 2026 Budget Law before the joint Committees of the Chamber of Deputies and the Senate, Fabrizio Balassone, Deputy Head of the Bank of Italy’s Economics and Statistics Department, discussed the possible impact of the measures contained in the financial package — from the contribution imposed on banks to the reduction of personal income tax (IRPEF) rates. Here’s how the Bank of Italy assesses the impact of the new financial measures.
The overall impact on public debt
According to official estimates, the financial package, as outlined in October in the Economic and Financial Planning Document (DPFP), will have negligible effects on the net borrowing requirement in 2026. However, it will moderately increase the deficit compared to current legislation in the following two years — by just under €6 billion in 2027 and around €7 billion in 2028, equal to an average of 0.3 percentage points of GDP per year. These figures make full use of the fiscal space allowed under the new European budgetary rules, as was also the case last year.
2026 Budget Law: Measures for Families
Several measures have been introduced to support households, each with a different level of impact. In its hearing, the Bank of Italy focused in particular on the following points:
Reduction of the second IRPEF bracket
The reduction of the second IRPEF rate from 35% to 33% entails a lower tax revenue of around €3 billion per year. The beneficiaries would be taxpayers with an annual income above €28,000, with savings increasing progressively up to a maximum of €440 per year for those earning €50,000 or more. For those earning above €200,000, the advantage could decrease or even disappear, as certain deductions will be cut to offset the lower tax rate.
The reduction of the IRPEF rate for the second income bracket mainly benefits households in the top two-fifths of the income distribution, though the percentage increase in disposable income is modest.
Changes to the ISEE
For access to several key welfare measures — such as the universal child allowance, inclusion allowance, training and employment support, nursery bonus and new birth bonus — the calculation of the Equivalent Economic Situation Indicator (ISEE) will be revised. The exemption threshold for the main home will rise from €52,500 to €91,500, and some equivalence scale parameters will be adjusted to reduce the index for families with at least two children. According to official estimates, the additional expenditure will amount to just under €0.5 billion per year over the 2026–2028 period.
It is worth noting that changes to the ISEE calculation, if also applied to services subject to limited availability — such as nursery attendance and school meals — could alter the order in which families qualify for access. Larger households and homeowners would benefit, while younger families and those with foreign citizenship could be disadvantaged, according to Bank of Italy estimates.
Effects on the banking sector
According to Fabrizio Balassone, “The impact of the fiscal measures contained in the budget on the assets of banks and insurance companies appears limited, but in general, it would be advisable to avoid frequent unexpected changes in taxation.”
“The repercussions on the overall capital position of financial intermediaries appear limited,” he added. “The Italian banking system is generally solid, well-capitalised, and currently among the most profitable in Europe. Credit risks remain low, thanks also to the good financial health of businesses.”
Tax arrears write-off (“Rottamazione delle Cartelle”)
According to the technical report, the new simplified settlement of outstanding tax debts will lead to lower revenues of €1.5 billion in 2026 and an average of €0.5 billion in the following two years, while generating higher revenues of €0.2 billion per year between 2029 and 2036. Although the government expects €9 billion in additional revenue from the scheme by 2036, this will be offset by a larger decrease of €9.8 billion in ordinary tax collection over the same period.
Balassone noted that “Tax evasion, as is well known, harms growth and creates inequality, penalising honest businesses and citizens. The financial package includes a new tax amnesty (‘rottamazione’), a tool that in the past has not improved the effectiveness of tax collection. At the same time, it includes measures that continue along the path of those which, thanks also to the increasing use of advanced technologies, have helped reduce tax evasion in recent years.”