Italy's government wins upper house confidence vote on 2026 budget

By Giuseppe Fonte

ROME, Dec 23 (Reuters) - Italy's government comfortably won a vote of confidence in the upper house Senate on Tuesday over its 2026 budget, keeping it on track to secure parliament's final approval before the end of the year.

Prime Minister Giorgia Meloni's government won the vote by 113 to 70.

The bill will move to the lower house next week where it is expected to be passed as usual before December 31, avoiding automatic curbs on spending and revenue measures that would otherwise kick in at the start of 2026.

The 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, while cutting taxes for low and medium income brackets.

Italy's public debt, proportionally the second highest in the euro zone, is projected to climb from 134.9% of GDP last year to 137.4% in 2026, before marginally declining.

Rome's budget plans have faced criticism from market investors due to tax hikes affecting banks, insurers and financial transactions.

These levies, which include a two percentage point increase in the rate of the IRAP corporate tax, are worth more than 12 billion euros ($14.13 billion) through 2028.

The European Central Bank warned that the budget could lead to domestic banks cutting their already modest flow of credit to families and firms, and hurt investors' confidence in Italy.

The tax hikes include the doubling of an existing levy on the purchase of shares and other financial instruments, the so-called Tobin Tax, aiming to garner around a billion euros over three years.

The Treasury forecast in September that the politically sensitive tax burden -- the level of taxes and social contributions as a proportion of GDP -- would rise to 42.8% this year from 41.7% in 2022, when Meloni took office.

Among last-minute changes, senators approved an amendment stating that the gold reserves held by Italy's central bank belong to "the people," an initiative that also drew criticism from the ECB.

($1 = 0.8492 euros)

(Editing by Gavin Jones)