Italy’s 2027 Budget Law (the legge di Bilancio, Italy’s annual budget law) has reached Parliament. The package is worth roughly EUR 26 billion (about USD 28.1 billion), and EUR 9 billion of that (about USD 9.7 billion) goes purely to extending incentives that already exist.

Parliament is preparing for its usual battle with the government to win a minimum of budget room to amend the measure. The starting point, at least, is now defined.

Several measures deserve a positive reception, among them the cut to IRPEF (personal income tax) for part of the middle class and the wider flat-tax regime for the self-employed with a VAT number. The questions are how long the benefits last, which groups are being asked to pay for them and what they do over the medium and long term.

A 33% rate up to EUR 55,000

The most heavily promoted provision is the extension of the 33% IRPEF rate to incomes between EUR 50,000 and EUR 55,000 (USD 54,000 to USD 59,400).

The technical report puts the number of taxpayers affected at about 3.2 million, with a maximum benefit of EUR 500 a year. The cut is funded for one year only. From 2028, new resources will have to be found to pay for it.

Flat tax, car tax and hiring incentives

The flat-tax threshold rises to EUR 100,000 (about USD 108,000) from the current EUR 85,000 (about USD 91,800). Here too there is a catch: the VAT exemption will have to be negotiated with the European Union, which has often taken aim at Italy over this tax regime.

The abolition of the bollo auto (the annual vehicle ownership tax) finally becomes permanent, with the same limits as the measure introduced a few months ago. Only cars with power at or below 80 kW (around 108 horsepower) qualify.

Two other items stand out. The deduction for hiring young people and women rises to 180%, and bonuses for workers under 30 are taxed at 1% up to EUR 2,500.

A savings fund for newborns

The Fondo Valore nuovi nati is a kind of savings pot in the name of children born from January 1, 2027. The state pays in EUR 100 a year until they come of age, EUR 1,800 in total.

CDP (Cassa Depositi e Prestiti, Italy’s state-controlled investment institution) will invest the money according to prudential criteria. Parents can top up their children’s fund with personal contributions eligible for a 19% IRPEF deduction up to EUR 1,000. Assuming a 3% return, a child born in 2027 would find a nest egg of around EUR 2,340 at age 18.

How CDP manages the funds in practice will become clear only with the implementing decree. At 18 the money can be taken out only to invest in starting a new business, to pay for school textbooks or to be moved into supplementary pension funds. That raises a question about whether this measure, too, is a further opening toward private pension provision.

One disappointment concerns incentives for the energy efficiency upgrading of buildings. In the weeks before the budget was presented, there had been talk of restoring the Ecobonus (the tax relief for energy-efficiency renovation work) to 65%, at least for certain types of work that are particularly effective in terms of energy savings.

The government chose instead to extend the 50% rate for a main residence and the 36% rate for other properties. The 65% strengthening that had been floated is not in the text.

How the package is paid for

The budget raises IRAP (the regional tax on business activity) by 5 percentage points for energy producers. For a given taxable base, five points mean an extra EUR 50,000 (about USD 54,000) for every million euros (about USD 1.08 million) of taxable net production value.

The government has expressly banned companies from passing the heavier tax burden, directly or indirectly, on to the prices, tariffs and charges applied to customers. On paper at least, that should protect households and businesses from any increases.

Higher taxation will still weigh on margins, on investment capacity, on commercial offers and on decisions about new projects by companies in the energy sector. It is genuinely hard to believe that no part of the extra tax ends up on Italians’ utility bills. The same considerations apply to the higher taxes on the banking sector.

Lower indexation for bigger pensions

The most controversial measure in the 2027 Budget Law is without doubt the indexation of pensions.

The government is changing the mechanism that adjusts pension payments to inflation, reducing the percentage granted to benefits above four times the INPS (Italy’s national social security institute) minimum pension. Full indexation applies only up to about EUR 2,447 gross a month. The adjustment then steps down, and for a pension of EUR 3,059 it is only 53%.

Above that threshold the adjustment falls step by step: 85% for payments up to around EUR 3,059, 53% for those between five and six times the minimum, 47% between six and eight times, 37% between eight and ten times, and just 32% for pensions above ten times the minimum.

A retiree receiving EUR 3,100 gross, that is around EUR 2,250 a month over 13 monthly payments, would see an adjustment of barely half of annual inflation. That raises the possibility of fresh challenges at the Corte Costituzionale, Italy’s constitutional court.

The Ragioneria dello Stato, the state accounting office, estimates that the lower indexation will produce gross savings of about EUR 1.48 billion (roughly USD 1.6 billion) in 2027 and EUR 14.24 billion (roughly USD 15.4 billion) in total through 2036.

That rests on an inflation estimate of 2.8% for next year. With the prices of gasoline, gas, electricity and all the fixed costs Italians face every day still rising, the figure could be well above 3%. The savings would then be larger, and tax revenues would rise as well thanks to higher VAT and excise duty receipts.

Parliamentary documentation on the 2026 Budget Law put projected VAT revenue at around EUR 217 billion (about USD 234 billion). Even small changes in prices can mean billions more for the state’s coffers.

The limitations of this budget law stand out against the record of the Draghi government (the technocratic administration led by former European Central Bank president Mario Draghi from 2021 to 2022), which can hardly be counted among the big spenders. At the worst moments of the energy crisis it introduced numerous measures to counter the rising cost of living: scrapping the system charges on electricity bills, cutting VAT on gas to 5%, tax credits for energy-intensive and gas-intensive businesses, and stronger social allowances that discount electricity and gas bills for low-income households.

Looking at the prices of gas, electricity and fuel, the problems look like those of 2022. Today, even the few responses deployed back then are missing.

Editor’s note

This article was originally published in Italian on money.it by Raphael Raduzzi on November 01, 2026 as «Legge di Bilancio 2027, luci e ombre della manovra: meno tasse per un anno, meno pensioni per sempre». It has been translated and adapted for an international audience by the Money.it International desk.