Italy Approves €26 Billion 2027 Budget, With Deficit Forecast at 3.4%
Key Facts
Italy’s cabinet approved the 2027 budget on October 28, the final budget of Giorgia Meloni’s government before elections scheduled for next year, including tax increases on banks, insurers, energy companies and the gaming sector. The measures are intended to fund tax cuts and spending increases, ministers said after the government’s approval. The measures are worth €26 billion, according to Meloni, and include easing the tax burden on middle-income earners and the self-employed, as well as increasing funding for the national health service. In return, financial, energy and gaming companies will pay higher contributions to cover part of the package. The budget thus pairs expanded spending with a projected deficit path that exceeds the European limit.
The budget expects Italy’s deficit to reach 3.4% of gross domestic product in 2027, compared with the 2.9% forecast for 2026, according to Reuters. The new estimate exceeds the European Union’s 3% ceiling, as the agency described the package as expansionary in the bloc’s third-largest economy. The government had previously targeted a figure of about €23.5 billion for tax cuts and spending increases in 2027, before the final report put the figure at €26 billion. The difference reflects the increase in the package’s announced value between the earlier estimate and the final announcement. The breach of the European ceiling also comes as Rome has secured temporary deficit flexibility from the EU, according to earlier reports.
On the funding side, financial institutions are expected to contribute more than €5 billion, while energy companies and the gaming sector will each contribute about €700 million. The financial institutions include banks and insurers, according to budget details reported by Reuters. The plan raises the corporate tax rate, “IRES,” on banks to 30.5% from 27.5%, and on insurers to 27% from 24%. The rate increases come alongside the announced sector contributions to fund the measures. Before the budget was approved, Italy had aimed to raise €5 billion from the financial sector, according to earlier coverage by EL7, while the final expected contribution exceeded that level.
Meloni said the government had been unable to reach a prior agreement with the financial sector, adding: “There was no opportunity to reach a prior agreement with the financial sector, and yet I would like to thank it.” The remarks come as the budget relies on contributions of more than €5 billion from financial institutions, as well as higher corporate tax rates on banks and insurers. Italy’s 2026 budget had already included tax measures on banks and insurers. The European Central Bank warned at the time that higher taxes could prompt domestic banks to cut already limited credit to households and companies, and could affect investor confidence in Italy. The tax increases in the 2027 budget bring these concerns back into the debate over public spending finance.
Italy intends to finance about half of the expansionary measures through the European Union’s “national escape clause,” which allows deficits to rise to fund defense spending and investments that make the economy greener. Approval followed an understanding with European authorities to grant Rome temporary deficit flexibility, according to Reuters. Discussions took place amid rising borrowing costs and pressure to maintain a cautious fiscal policy. The clause provides room to finance parts of the package, while the targeted deficit ratio remains above the European Union ceiling. The budget thus balances support for incomes and health spending on one hand with expanded financing headroom within European fiscal constraints on the other.
Italy’s statistics agency, “Istat,” will publish September employment and unemployment data on October 29, 2026, according to its official calendar. The following day, it will release a preliminary estimate of gross domestic product for the third quarter of 2026. The calendar sets the release of labor data for Thursday, October 29, at 10 a.m., and the GDP estimate for Friday, October 30, at 10 a.m. The releases come two days after the budget’s approval and focus on the labor market and economic activity in the third quarter. The forthcoming GDP release differs from an annual growth rate, as it is a preliminary estimate for the third quarter.