Italy may hike tax on energy firms to fund budget, sources say

Italy Considers Raising Energy Firms' Taxes to Fund 2027-2029 Budget

Government Strategies and Economic Context

By Giuseppe Fonte

ROME, Oct 23 (Reuters) - Italy may increase taxation of energy companies to fund tax cuts and spending hikes in the government's budget for 2027-2029 to be presented next week, people close to the matter told Reuters.

Challenges Facing the Italian Government

Surging energy and borrowing costs are making it difficult for Prime Minister Giorgia Meloni to put together her last budget before national elections due next year.

Proposed Tax Measures

Hiking the IRAP corporate tax on all companies that produce, distribute, and supply energy products would help cover the government's funding needs, the sources said.

Italy in February already raised IRAP on energy firms for 2026 and 2027 to 5.9% from a previous 3.9%, aiming for around €1 billion ($1.12 billion) of higher revenue over the two years.

Options being discussed include a further increase in the IRAP rate or an extension of the new 5.9% level through 2029.

Energy Sector Developments

ENI's Financial Performance

ENERGY GROUP ENI SEES PROFIT SURGE

Leading energy groups, including state-controlled Eni, announced price caps ​last month to help Meloni curb fuel prices, a move widely seen as an ​attempt to deter ⁠the government from imposing some form of windfall tax.

Nevertheless, prices remain high and Meloni is facing mounting pressure from protests in both southern and northern regions over the rising cost of living.

ENI's Response to Market Conditions

Eni said on Friday it would pay a €1.3 billion special dividend and increase its share buyback programme after its third-quarter net profit more than doubled from a year ago, propelling its shares to a near 20-year high.

Public Reaction and Protests

Truck drivers in southern Italy have been blocking roads over the last week in protest against fuel costs, and riots in the north last weekend saw gangs of mainly young people go on the rampage in Milan and other cities.

The latest group to join the protests are taxi drivers, whose representatives promised a rally outside the economy ministry on Monday to call for government support to offset sky-high diesel prices.

Budgetary Plans and Future Outlook

Draft Budgetary Plan (DBP) Insights

The Treasury's Draft Budgetary Plan (DBP), a forecasting document that sets the framework for the detailed budget bill, made no reference to new levies on energy firms when it was published last week.

However, the document showed Rome was planning unspecified tax hikes amounting to between €10 and €11 billion, or 0.44% of national output, over the next three years.

Revenue Projections from Financial Sector

The DBP envisaged a similar amount of extra revenue from the financial sector through 2029.

($1 = 0.8934 euros)

(Editing by Gavin Jones)