Italy approves budget, seeks cash from banks and insurers

By Giuseppe Fonte, Gavin Jones and Valentina Za

ROME/MILAN (Reuters) - Italy will garner resources from its banks and insurers to help fund its 2026-2028 budget, the Treasury said on Tuesday after the cabinet signed off on the draft package.

Political sources said the financial sector would be called upon to contribute to state coffers with total resources worth between 4.5 and 5 billion euros ($5.80 billion) spread over several years.

The draft budget, which targets Rome's deficit to fall to 2.8% of national output in 2026 from an estimated 3% this year, will now be sent to the European Commission for approval.

Tax cuts and other expansionary measures over the next three years will average around 18 billion euros per year, the Treasury said, to be funded by spending curbs and increases in revenues from various sources.

"On the revenue side, resources gathered from banks and insurance companies will assist with financing," the Treasury said in a statement, without elaborating.

Economy Minister Giancarlo Giorgetti said the government would provide budget details on Friday.

BANKS OFFER TO MAKE CONTRIBUTION

Italy's banking lobby ABI said earlier on Tuesday they would agree to support public finances through an extension of a measure imposed by the government last year entailing a multi-year freeze of tax credits, known as deferred tax assets (DTAs), that lenders can tap to boost profits.

Representatives of the banking sector met government officials on Monday, followed by a meeting of ABI's steering committee.

Key measures in the budget include a reduction in the main income tax IRPEF, at a cost of 9 billion euros between 2026 and 2028, the Treasury said.

The rate on the second of the three IRPEF tax brackets will be reduced to 33% from the current 35%.

In addition, 2 billion euros will be budgeted next year alone to compensate workers for the erosion of their salaries due to the surge in inflation in 2022-2023. No details were given on what form this measure would take.

TAX AMNESTY

The budget also includes a large scale tax amnesty which allows people who have not honoured their tax bills up to 2023 to settle the dispute with the state revenue agency without sanctions or interest.

Such recurrent tax amnesties have been a feature of Giorgia Meloni's right-wing government since she took office in 2022.

The budget also allocates 4 billion euros for tax breaks aimed at boosting corporate investments.

Regarding banks, the DTA freeze provides short-term liquidity to the government by boosting tax revenues, but does not increase the overall tax burden on the lenders.

Initially imposed for 2025-2026, the freeze is now expected to be extended to 2027-2028, sources previously said.

The government is also considering lowering to 26% or 27.5% from the current 40% the tax to be paid for banks to unlock 6.2 billion euros in reserves they set aside last year under an opt-out clause from a contested 2023 windfall tax, the sources said.

If banks distribute the reserves, with a 26% tax rate on dividends, the overall tax take could be roughly 3 billion euros, the sources have said.

The final details of the budget are expected to feature a mechanism to push banks to free up the reserves by paying the lower rate.

Opposition politicians accused the government of sending conflicting signals, first criticising the banks for huge profits passed on to shareholders, and then encouraging them to pay out even more dividends.

($1 = 0.8617 euros)

(Writing by Gavin Jones, editing by Keith Weir and Hugh Lawson)