Italy to approve 2027 budget on Wednesday, after clinching EU deficit leeway (updated)

Unicredit, SpA

Tue 14:34

Italy plans tax cuts, spending hikes worth €23.5 bln next year
Financial firms, energy groups face higher IRES, IRAP tax bands
Cash-strapped Italy may also hike tax on financial transactions 
Adds details throughout
By Giuseppe Fonte and Alvise Armellini
ROME, Oct 27 (Reuters) - Italy will approve its budget law for 2027 on Wednesday, Economy Minister Giancarlo Giorgetti said, after successful talks with European Union authorities over granting a temporary increase in the fiscal deficit.
Speaking at a conference on Italy's regions on Tuesday, Giorgetti said he faced spending requests from ministries that were "far above" Italy's budgetary capacity, reiterating Rome's cautious stance on state finances amid rising borrowing costs.
"These are very intense times, we're working day and night," Giorgetti said.
Italy aims to fund tax cuts and spending hikes worth around €23.5 billion ($26.22 billion) next year, with financial firms and probably also energy groups forced to help the government find the cash through higher taxation.
The cabinet is expected to meet on Wednesday at 1400 GMT to approve the last budget under Prime Minister Giorgia Meloni before national elections due in 2027.
Italy will finance around half of the measures envisaged in the budget by tapping the European Union's so-called "National Escape Clause" (NEC), which grants temporary and partial exemption from the bloc's budget rules.
The NEC allows higher deficits to boost the defence budget and to pay for investments to make the economy greener. Italy, however, wants to use part of the leeway to help families cope with surging energy costs.
"We've settled practically all the details (of the NEC application) so I am satisfied," Giorgetti told reporters on the sidelines of a separate event, later on Tuesday.
Italy has estimated its budget deficit will rise to 3.4% of gross domestic product ‌next ⁠year from 2.9% expected in 2026, before marginally declining to 3.2% in 2028.
Banks, insurers and other financial institutions such as the state lender Cassa Depositi e Prestiti (CDP), are expected to contribute to the budget through higher taxes worth around €5 billion, under a Draft Budgetary Plan published this month.
Options being discussed include hiking the IRES corporate tax on the financial sector to up to 30% from a current 27.5%, and an increase in a tax on financial transactions, people familiar with the matter said.
Italian banks complain they already are subject to a heavy burden as other businesses pay a lower 24% rate. They say these sectors should also contribute to easing energy costs for households and firms.
Italy may also increase to 6.65% from 5.9% the IRAP corporate tax rate on companies that produce, distribute, and supply energy products, aligning their rate with that of banks, according to the sources.
Meloni, facing pressure from protests over the rising cost of living, wants to cut taxes for middle-income earners and allow early retirement for some categories of older employees.
($1 = 0.8961 euros)

 (Editing by Gavin Jones)
 ((alvise.armellini@thomsonreuters.com;))