The Meloni government has decided to invest significant resources from the 2023 budget law in two main initiatives for 2024: the reduction of the tax wedge for workers with incomes of less than 35 thousand euros and the Irpef reform, reducing the brackets from four to three. These measures will only be valid for the current year, requiring new resources for their possible extension in 2025.
There extension of the tax wedge cut, which has increased the wages of around 14 million workers in the last two years, is an issue that worries many Italians. This measure allowed many workers to see an increase in their salary. Will things change next year?
Bank of Italy and contribution rate
The Bank of Italy’s annual report analyzed the impact of the new fiscal policies, also including the mothers bonus, a measure that reduces social security contributions for specific categories of workers. The evaluation revealed that these initiatives increased the disposable income of Italian families by 1.5% on average in 2024. Specifically, the cut in the tax wedge and the mothers’ bonus contribute 1%, while the rIrpef form provides a 0.5% increase.
The tax wedge represents the portion of the gross salary allocated to social security contributions. With the new provision, for workers with incomes up to 25 thousand euros, the contribution rate is reduced by 7 percentage points, thus leaving greater economic availability in the paychecks. For incomes between 25 thousand and 35 thousand euros, the reduction is 6 percentage points, resulting in a net monthly increase that varies between 60 and 100 euros.
The Bank of Italy has highlighted that families with only one medium-low income worker and those with two workers in the same conditions have benefited most from the new measures, with an increase in disposable income that can reach up to 2.4%. However, there are critical issues for those close to the income thresholds established by the measures: earning slightly more could lead to a disproportionate increase in taxes and contributions, effectively reducing the net disposable income.
The extension of the tax wedge cut to 2025 will require almost 11 billion euros. But, without going into deficit, the Government will have to find new sources of financing. There is talk of a possible reduction in tax breaks to recover 5 billion, but another 6 would still be missing.
Costs and financing of current economic measures
In 2024, the reduction of the contribution wedge had a significant cost for state finances, amounting to €10.70 billion, financed through debt. The reduction in personal income tax, which expires at the end of the year, also resulted in a cost of 615 million, which was also covered by the deficit. The Minister of Economy, Giancarlo Giorgetti, underlined that the extension of the tax wedge cut for 2025 will be a priority in the next budget law.
With the imminent arrival of the letter from Brussels, scheduled for June 19, which will announce the opening of an infringement procedure for excessive debt, the government will have to reduce the public debt by 10 billion a year for seven years. This makes it unlikely that the deficit will be used to finance further extensions.
The future of workers’ salaries
The possibility that salaries they become lower again from 2025 it is very concrete. Despite the government’s good intentions, economic resources are scarce. Giorgia Meloni, in previous statements, expressed the desire to make cutting the tax wedge a structural measure, but also recognized the difficulties in doing so due to future economic uncertainties.
In May 2023, Meloni had expressed his intention to make the reduction of the tax wedge permanent, but already in November he scaled back these expectations, underlining the difficulties in the current context.
