Italy approves 2027 budget with tax hikes on banks and energy firms

ROME, Oct 28 (Reuters) - Italy will raise taxes on banks, insurers, energy firms and the gaming industry to help finance its 2027 budget, ministers said after cabinet approved the last financial bill under Prime Minister Giorgia Meloni before an election due next year.

The expansionary package targets the budget deficit in the European Union's third-largest economy to rise to 3.4% of gross domestic product next year - well above the EU's 3% ceiling - from 2.9% expected in 2026.

The budget sets out tax cuts and spending hikes worth €26 billion ($28.91 billion), aiming to lower the fiscal burden for middle earners and the self-employed while increasing funding for the national health service, Meloni said at a news conference.

Financial firms will have to contribute more than €5 billion to help finance these measures, with energy companies and the gambling sector each providing €700 million.

MELONI THANKS BANKS AFTER HIKING THEIR TAXES

Meloni told reporters she would also hike Italy's tax on financial transactions.

"There was no opportunity to reach a prior agreement with the financial sector, which I would nevertheless like to thank," the prime minister said.

The budget increases the IRES corporate tax rate to 30.5% from 27.5% for banks, and to 27% from 24news1% for insurers.

Meloni said she did not expect legal challenges from the financial firms targeted by the tax hikes. Deputy Economy Minister Maurizio Leo added that the higher tax burden had been designed to avoid affecting banks' capital ratios.

Additional cash will come from the IRAP corporate tax through a reduction in tax breaks, though it was not clear which companies will be affected.

The politically sensitive tax burden - measured as the sum of taxes and social contributions as a proportion of national output - has risen by around 1.5 percentage points to 43% since Meloni took office in late 2022.

Italy will fund roughly half of the expansionary budget measures by tapping the European Union's so-called "National Escape Clause" (NEC), which allows higher deficits to boost defence spending and investments that make the economy greener.

The government will use the leeway to install and upgrade climate control system in schools, universities, hospitals and sports facilities, Economy Minister Giancarlo Giorgetti said.

The budget will expand Italy's 33% income tax bracket to people earning up to €55,000 per year. The 33% rate currently applies to annual income between €28,000 and €50,000, while income above €50,000 is taxed at 43%.

The maximum benefit for taxpayers will be about €500 per year, Meloni said.

SELF EMPLOYED GET BETTER TAX TERMS

The self-employed, a bedrock of support for Meloni's right-wing government, will pay just 15% on annual income of up to €100,000, raising the threshold from the current €85,000.

The budget also makes permanent a reduction in road tax covering more than 70% of small and medium-sized cars, which is currently in place only until the end of 2027.

Italian citizens will also be allowed to custom plate their cars by paying a fee.

"Something tells me that the Italians' creativity could really shine here...," Meloni said.

($1 = 0.8993 euros)

(Editing by Gavin Jones)

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