Italian parliament gives final approval to government's 2026 budget

By Giuseppe Fonte

ROME, Dec 30 (Reuters) - The Italian lower house on Tuesday passed the government's 2026 budget, giving final parliamentary approval to the deficit-cutting package which becomes law just ahead of a end-year deadline.

Prime Minister Giorgia Meloni's fourth budget aims to lower next year's fiscal deficit to 2.8% of gross domestic product from a targeted 3% in 2025, paving the way for Italy's exit from an EU excessive deficit procedure in 2026.

However, Italy's public debt, proportionally the second highest in the euro zone after Greece, is projected to climb to 137.4% of GDP in 2026 from a forecast 136.2% this year. The closely watched ratio is expected to start easing slightly from 2027.

"The budget is serious and responsible, built in a challenging context, which concentrates the limited resources available on families, work, businesses and healthcare," Meloni wrote on X.

Critics say the budget is too cautious and doesn't reduce Italy's high tax burden -- the level of taxes and social contributions as a proportion of GDP -- which is expected to hover at 42.7% next year, broadly in line with this year's level but up from 41.7% in 2022, when Meloni took office.

Elly Schlein, the leader of Italy's main opposition centre-left Democratic Party (PD), said the government was pursuing a damaging policy of budgetary austerity that was not doing enough to boost Italy's lacklustre economy.

Meloni's government set a full-year growth target of 0.5% this year and 0.7% for 2026, among the lowest rates in Europe.

The rightwing coalition won the final vote on the budget by 216 to 126, after a first reading in the upper house Senate.

The bill entails tax cuts and spending hikes worth around 22 billion euros ($25.9 billion) next year, mainly benefiting low- and middle-income workers and firms investing in high-tech capital equipment.

More than 25% of the funding, or 5 to 6 billion euros, comes from the financial sectors through a raft of tax hikes impacting banks, insurance companies and market transactions.

Among last-minute changes, Italy will introduce a levy of 2 euros on parcels valued at up to 150 euros sent from non-EU countries, targeting online platforms such as Shein and Temu to protect its fashion industry from low-cost foreign imports mostly from China.

($1 = 0.8498 euros)

(Reporting and graphics by Giuseppe Fonte and Antonella Cinelli; Editing by Crispian Balmer)