Prime Minister Giorgia Meloni’s cabinet is tapping Italy’s banks and insurers to help finance €3.5 billion ($3.8 billion) of its budget, in a new plan designed to deliver on giveaways pledged to voters.
Most of the amount will be raised by postponing tax deductions due to banks, people familiar with the matter said. That move — anticipated ahead of the announcement — probably won’t impact lenders’ profitability in significant way, according to analysts.
“As we promised, there will be no new taxes for citizens,” Meloni said in a post on X on Tuesday. “€3.5 billion from banks and insurance companies will be allocated to healthcare and the most vulnerable.”
She didn’t specify how that money would be collected or over what time frame. The Treasury confirmed that the financial sector will help cover spending, but also failed to provide details. Finance Minister Giancarlo Giorgetti is set to hold a press conference on Wednesday at 11 a.m. in Rome.
Oggi, in Consiglio dei Ministri, abbiamo varato la legge di bilancio, un intervento che mette al centro i cittadini, le famiglie e il rilancio della nostra Nazione.
Come avevamo promesso, non ci saranno nuove tasse per i cittadini. Inoltre, rendiamo strutturale il taglio delle… pic.twitter.com/scgmgnzBw9
— Giorgia Meloni (@GiorgiaMeloni) October 15, 2024
The budget was agreed by ministers at a gathering late on Tuesday, just in time to meet a deadline to submit the plan for European Union scrutiny. The measures still need to be submitted to parliament for signoff.
The outcome, in a package with a gross value of €30 billion ($33 billion) for 2025, ends weeks of government agonizing over how to reconcile a vow to accelerate Italy’s deficit cutting with the political necessity of meeting expensive election promises.
Those pledges include a reduction in the tax wedge — the difference between what workers cost employers and what gets paid out to them — and aid to low-income households and small businesses.
The government is also boosting defense spending and outlays on healthcare.
The announcement crystallizes an aim of Giorgetti’s — a member of the League, which is a junior partner in the governing coalition — to deliver a budget reaping “sacrifices from everyone” with all parts of society helping out, as he described it this month in an interview with Bloomberg.
The financial-sector measures will work through the postponement of deferred tax assets, people familiar with the matter said, speaking on the condition of anonymity because the details have not yet been made public.
The government will freeze the absorption of state-guaranteed DTAs on past credit losses, IFRS9 and goodwill by delaying their deductibility for the next two years, and their recovery would be spread over a delayed period starting in 2027.
“This will have small impact on banks’ capital-development and will not have significant effect on profitability,” Azzurra Guelfi, an analyst at Citigroup Inc. wrote in a note.
Bank shares were little changes in early trading in Milan on Wednesday.
A spokesperson for the Finance Ministry didn’t immediately return requests for comment.
League chief Matteo Salvini, who also is a deputy prime minister, declared the hit on banks and insurers as a “victory” for his party, according to a post on X.
✅VITTORIA LEGA!
Previsti in manovra economica 3,5 miliardi da banche e assicurazioni da investire in Sanità, come la Lega ha sempre auspicato.
Bene così. pic.twitter.com/3pv9ZNqxC6— Matteo Salvini (@matteosalvinimi) October 15, 2024
By tapping banks, Giorgetti is revisiting a prior target for the government, which has singled them out repeatedly for gaining excessively from a high interest-rate environment.
In the first half, profit at Italy’s largest lender, Intesa Sanpaolo SpA, rose 13% from a year earlier. At UniCredit SpA, its next-biggest rival, it rose about 20%.
Past attempts to tax banks haven’t worked however. Last year, an unexpected proposal to do so flopped after a major selloff in Italian stocks. Giorgetti promised there would be no repeat of that mistake, and the Italian Banking Association has worked with government officials in recent weeks on a solution to contain any fallout.
The approved “measure confirms no banking tax on extra profits, just as interest rates are starting their descent, but rather a liquidity measure, in line with the initial proposal made by the Italian banking association, which we would deem bearable for the sector,” said Mediobanca SpA’s analyst Andrea Filtri in a note.
Giorgetti is also drumming up more money by cutting expenses in public administration.
The need to improve Italy’s finances took on more urgency ever since it was placed into a special monitoring regime by Brussels officials for running deficits far in excess of the EU’s 3%-of-output limit.
In a bid to rebuild fiscal credibility, Giorgetti quickened the timetable for that, pledging to bring shortfalls to below that ceiling by 2026 and to start reducing its mammoth debt a year later.
So far, in contrast to the investor alarm surrounding France in recent weeks, Italy has managed to reassure financial markets. The spread between Italy’s 10-year bonds and those of Germany — a key measure of risk in the region — touched 124 basis points on Tuesday, the lowest since March.
