ROME (Reuters) – The Italian Senate on Saturday approved the government's 2025 budget to reduce the deficit, giving parliament final approval for the package that will become law before a year-end deadline.
Prime Minister Giorgia Meloni's third budget aims to reduce the fiscal deficit next year to 3.3% of GDP from the 3.8% target in 2024, while reducing taxes on low- and middle-income groups.
Italy is subject to orders from the European Union to reduce its deficit after huge excesses in 2022 and 2023, and has pledged to reduce it to below the European Union ceiling of 3% of GDP in 2026.
However, public debt, the second highest in the euro area, is expected to rise until 2026 due to the delayed impact of costly government subsidies for energy-efficient construction – the so-called “bonus”.
The Treasury expects debt to rise from 134.8% of GDP last year to 137.8% in 2026, before declining marginally.
The right-wing government won the final vote on the budget after the second reading in the Senate by a majority of 108 votes to 63. The House of Representatives approved it last week.
The package expands next year's deficit to 3.3% of GDP from 2.9% based on current trends, and borrows an additional nine billion euros ($9.4 billion) to finance tax cuts and some other expansionary measures.
The euro zone's third-largest economy has stagnated in recent months, and growth this year is now expected to reach about half of the government's official target of 1%.
The slowdown might have been more severe without the regular access to Rome's coffers of tens of billions of euros from the European Commission under the EU's post-Covid-19 recovery fund.
However, Rome's fiscal consolidation efforts may benefit from lower borrowing costs.
The parliamentary budget watchdog predicted this month that returns on Italian sovereign bonds would be much lower than the government expected, with 1.7 billion euros saved next year and 17.1 billion by 2029.
($1 = 0.9590 euros)
