Italy Drafts 2027 Budget With Targeted Tax Cuts for Youth and Freelancers

ROME — The Italian government is finalizing a 23.5 billion euro budget draft for 2027, slated for presentation to the Council of Ministers on Wednesday, October 28. Facing strict fiscal limits, the coalition has focused its primary tax relief measures on younger demographics and the self-employed, while setting aside broader reductions to national personal income tax brackets for middle-income earners.

A central component of the economic package is fiscal relief for early career workers. The proposals under review include a "mini-Irpef" income tax reduction for workers under age 30, along with a possible expansion of the tax-exempt threshold for those under 25. Additionally, lawmakers are evaluating a 5% substitute tax for newly hired workers, though draft discussions alternately reference age caps of 30 or 35. For employers, the budget envisions expanded labor-cost deductions of 140% for hiring young workers, rising to 180% for new hires of young mothers.

These targeted cuts come alongside the shelving of a widely anticipated personal income tax reduction for middle-income earners. The governing majority had previously considered reducing rates for earnings between 28,000 and 50,000 euros or extending the 33% bracket up to 55,000 euros. However, coalition leaders dropped the proposal from the draft, citing insufficient funding. Economy Minister Giancarlo Giorgetti highlighted the stringent fiscal constraints, noting that resources are limited and remarking during a recent party congress that politics "is the art of the possible, not the impossible."

Self-employed professionals and small businesses are also set to receive adjustments under the plan. The revenue ceiling for the 15% flat-tax regime for freelancers is slated to increase from 85,000 euros to 100,000 euros, with a 5% rate remaining available for new business activities. Under the political compromise, taxpayers earning between 85,000 and 100,000 euros would gain access to the simplified flat rate but would still be required to charge value-added tax on transactions above the original threshold.

Other tax adjustments outlined in the draft target employment bonuses and property rentals. The government plans to extend a reduced 5% tax rate on wage increases resulting from collective bargaining renewals, potentially capped for workers earning up to 33,000 euros. Ministers are also considering a 10% to 15% reduced tax rate on year-end thirteenth-month bonuses for lower-income employees. On commercial real estate, policymakers are weighing a flat tax option of 21% for shop leases up to 300 square meters, which would drop to 10% in major metropolitan centers.

Beyond taxation, the package introduces targeted social and retirement initiatives. The coalition agreed to establish a sub-one-billion-euro fund to support early retirement mechanisms, deferring full implementation details to future decrees. To assist older citizens with limited incomes, negotiators are deliberating a healthcare card valued at 300 to 500 euros for individuals over 75 to help cover expenses such as dental care and prescription medications. The plan also includes an exemption from the annual automobile ownership tax for families with at least four children.

Securing funding for the 23.5 billion euro budget hinges on ongoing discussions with the European Commission and additional sector levies. Italy is seeking flexibility from Brussels to deploy 14.4 billion euros in extra deficit spending under safeguard clauses designated for energy transition and defense expenditures. To cover the remaining gap, the government intends to collect roughly 5 billion euros from banks and insurance companies by raising financial transaction taxes, applying corporate surcharges, and freezing deferred tax assets for 2027.