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The 2026 Italian budget,recently approved,reveals a complex landscape of austerity measures,strategic funding shifts,and nuanced policy changes largely overshadowed by debates surrounding pensions and tax reforms. While discussions centered on Irpef, pension schemes, and banking regulations, meaningful cuts to ministerial budgets, revisions to the National Recovery and Resilience Plan (Pnrr), and new allocations for reconstruction efforts have largely flown under the radar.
Manny issues within the budget law remained obscured during initial debates, despite their considerable relevance. According to reports, only Economy Minister Giancarlo Giorgetti openly addressed the cuts to ministries – the first considerable reductions outside of routine spending reviews – during discussions with his cabinet colleagues. The revision of the Pnrr,while providing crucial financial flexibility,has also had a significant,though often unacknowledged,accounting effect. Concurrently, new funding for reconstruction projects and numerous localized interventions championed by parliamentarians are poised to impact regions across the country.
Ministerial Budget cuts Exceed €10 Billion
Significant austerity measures are embedded within the 2026 budget, with over €10.4 billion in cuts slated for ministerial budgets over the next three years. Minister Giorgetti had previously warned his colleagues of these impending reductions, which extend beyond standard spending reviews and represent the most substantial cuts in recent memory. Approximately €7.2 billion in planned expenditures will be deferred until after the end of the current legislature, while a further €3.2 billion has been definitively cancelled.
The Ministry of Infrastructure, led by Matteo Salvini, bears the brunt of these cuts, losing €1.2 billion, impacting crucial projects related to subways, roads, ports, and even the long-debated Messina Bridge. These reductions primarily target “passive residues” – funds allocated in previous budgets that remained unspent by individual ministries. While ministers offered justifications for these unspent funds, Giorgetti deemed them unproductive and redirected them back into the budget’s overall availability. Ministries with the poorest spending performance, including Health, Justice, Surroundings, Tourism, Education, and Culture, were particularly affected, despite their attempts to reinstate funding.
Ethereum Taxation and Banking Innovations
Ethereum will be taxed at 33%, and the existing €2,000 exemption will be eliminated.
Initially, Economy Minister Giorgetti proposed a significantly higher tax rate of 42% without any deductible, arguing it would incentivize long-term investment. However, parliamentary opposition led to a compromise, resulting in the current 33% rate. Banks are also preparing to introduce their own digital currencies, adding another layer of complexity to the evolving regulatory landscape.
Earthquake Reconstruction Funding Shift
A new approach to funding post-2016 earthquake reconstruction efforts has been adopted, shifting away from the 110% tax deduction scheme to direct contributions from a designated commissioner.This decision, spearheaded by Extraordinary Commissioner Guido Castelli, addresses concerns about the potential loss of €1.3 billion in funding and the risk of leaving thousands of families in central Italy without completed homes.
Previously, families relied on the 110% deductions to cover costs not fully covered by public contributions, but were required to complete work by the end of the year. The direct financing solution allocates €1.3 billion over ten years, with an additional €250 million earmarked for 2026.
Pnrr Remodeling Yields €7 Billion
A key factor enabling the passage of the budget was the remodeling of spending within the National Recovery and Resilience Plan (Pnrr). By shifting expenditures beyond 2026 through financial mechanisms agreed upon with the European Commission, the government has freed up over €7 billion in budgetary resources, with €5.9 billion available in the coming year.
This reallocation was facilitated by the sixth revision of the Pnrr,approved by Brussels in November and afterward incorporated into the budget law. Additionally, the transfer of €2.5 billion (€1.5 billion in 2026) from the Development and Cohesion Fund to the budget further bolstered available funds.
The 2026 budget represents a delicate balancing act between austerity, strategic investment, and political compromise, with its full impact remaining to be seen.
