Italy seeks contribution from banks to fund tax cuts in 2026 budget

By Giuseppe Fonte

ROME (Reuters) -Italy will negotiate with domestic banks on the terms of a contribution to provide additional cash for state finances, ruling lawmakers told Reuters on Tuesday, as the government assesses ways to fund tax cuts in its 2026 budget.

The move piles pressure on the banking sector, which faces widespread criticism from Prime Minister Giorgia Meloni's right-wing coalition for failing to reward depositors or offer better lending conditions for firms, despite record profits driven by high interest rates.

"When you start talking about the budget, it is obvious that you look at a contribution from banks," said Marco Osnato, a leading economic adviser from Meloni's Brothers of Italy party.

The negotiations are part of moves to put together a budget for approval by the cabinet in mid-October.

Italy's top seven banks posted combined 2024 profits of around 25 billion euros ($29.27 billion), according to the FISAC CGIL union. Banks paid out 21 billion euros to investors and cut the number of branches by 5%.

Now that lower interest rates have started biting, Italian banks have engaged in an intense round of consolidation.

Banks contributed to financing the Italian budget with over 4 billion euros as a result of a package of measures the government imposed at the end of last year.

Rome had sparked a sell-off in banking shares in August 2023 by announcing a shock 40% tax on income that banks had pocketed from the rise in interest rates. The government was later forced to backtrack and eventually introduced an opt-out clause that meant the measure yielded no proceeds.

The government is under pressure to ease the tax burden on the middle classes without jeopardising efforts to bring the deficit below 3% of gross domestic product (GDP) by next year at the latest from 3.8% in 2024, as agreed with European Union authorities.

Asking not to be named, a government official said Rome could raise funds by changing the terms allowing banks to use tax credits known as deferred tax assets or DTAs to lower their payments, following the approach taken last year.

Andrea De Bertoldi, from the co-ruling League party, said the government would move after consulting with the sector, without providing further details.

"I can rule out there will be mandatory levies, we are talking about some forms of agreed contribution to support the economy," he added.

($1 = 0.8542 euros)

(Reporting by Giuseppe FonteEditing by Keith Weir)