Italy believes its banks can manage increases in budget taxes.

Italy’s Planned Tax Increases on Financial Sector

ROME – Prime Minister Giorgia Meloni reassured the public on Friday that the increased taxes on banks and insurance companies, outlined in the government’s 2026 budget, wouldn’t negatively impact the economy or stir unrest within the financial sector.

As part of the budget plan for 2026-2028, banks and insurance firms are looking at an €11 billion (approximately $12.84 billion) hike in taxes. This includes a 2 percentage point rise in IRAP, which is a significant corporate tax rate.

“I’m not concerned about any backlash,” Meloni mentioned to reporters after the cabinet approved the budget. She dismissed notions that she was targeting the lenders, who have seen significant profits in recent years.

This tax increase is expected to support broader tax cuts and spending enhancements totaling €18.7 billion in 2026, maintaining the same level for the following years. The government’s strategy is mainly geared toward aiding middle-income families and investing in industrial sectors.

Resolving Differences Within the Government

The aim is to regain fiscal stability despite sluggish economic growth, with the proposed budget targeting a budget deficit decrease to 2.8% of GDP from 3% in 2025.

Internal disagreements within the ruling coalition about financial resource management were settled during a meeting late Thursday.

Looking ahead, the financial sector is projected to contribute around €4.4 billion to the national treasury next year.

“This isn’t an expropriation. Rather than banks pocketing €50 billion in profits, they’ll take home €45 billion,” said Deputy Prime Minister Matteo Salvini, who leads the co-ruling Alliance party advocating for higher taxes on lenders.

Next year, under the new measures, the IRAP rate will rise to 4.65% for banks, and insurance companies will see increases from 5.90% to 6.65%, reaching 7.90% for some sectors. Rome also plans to tighten regulations surrounding the use of past losses for tax reductions and extend the timeline for accounting for impaired loans.

Economy Minister’s Perspective

Economy Minister Giancarlo Giorgetti, also from the Alliance party, commented, “These are manageable measures. Naturally, no one enjoys paying taxes, though I doubt anyone would be eager to celebrate.” Following a ruling from the European Union in August, Italy will offset part of the tax increase by returning around €1.5 billion in IRAP taxes already paid on foreign dividends by banks.

Additionally, Giorgetti confirmed that the tax rate for banks to access €6.2 billion in previously set-aside reserves—which many have contested—will be lowered from 40% to 27.5%.

If banks decide to distribute these reserves, the total tax liability could be around €3 billion, assuming dividends are taxed at 26%, as previously reported.

Despite this, critics argue that the government’s approach sends mixed messages: first alleging that banks were excessively rewarding shareholders, then encouraging even more dividend payouts.

Among other budgetary adjustments, plans are underway to raise the “flat tax” threshold on foreign income for affluent individuals residing in Italy from €200,000 to €300,000.