Budget Law and EU Council: 2024 offers hope for peace
This has been a pivotal week for the budget law, which has passed the amendment stage and is on track to conclude its parliamentary process, with final approval expected by the end of December. As anticipated, the most significant measure involves the reduction of personal income tax (IRPEF) rates across three brackets: 23% for incomes up to €28,000, 35% for incomes up to €50,000, and 43% for incomes above €50,000. Additionally, the tax wedge reduction has been extended to cover incomes up to €40,000 (previously €35,000), benefiting an additional 3 million taxpayers. For incomes below €20,000, an extra percentage-based relief is introduced, ranging from 7.1% to 4.8%, depending on the income bracket. Salaried workers earning over €20,000 will receive an additional deduction of €1,000 for incomes up to €32,000, with progressive reductions for incomes up to €40,000. Together, these two measures will account for two-thirds of the total €30 billion budget.
The final text, which includes over 300 amendments approved by the House Budget Committee after a marathon 44-hour session, has been accompanied by a technical report from the State Accounting Office confirming the funding coverage for the proposed expenditures. No issues arose that required the text to be sent back to the Committee.
Seventeen of the €30 billion allocated in the 2025 budget law are dedicated to making permanent the current tax wedge reductions on paychecks and the simplification of personal income tax into three brackets. However, the mechanism has been altered: the tax cut will no longer appear as a discount on contributions to the National Social Security Institute (INPS) for salaries up to €35,000 but instead will take the form of a “bonus” for those declaring up to €20,000 and a tax reduction for those earning between €20,000 and €40,000, with the benefit gradually decreasing above €32,000. Unlike the old tax wedge reduction, which will be phased out at the end of the year, eligibility for these relief measures will now be based on “total income” rather than salary alone. Thus, owning a second property rented out could disqualify individuals, even if their earnings fall below €40,000.
The government’s other key commitment this week was the European Council meeting. Peace in Ukraine has returned to the top of the agenda, this time with seemingly greater concreteness. This final summit of 2024 will likely be remembered as the most intensely debated peace discussion since the war began in February 2022. For now, the leaders have avoided delving into specifics, instead reiterating a fundamental principle: no negotiations regarding Ukraine should occur without Ukraine’s involvement.
In his address to the 27 European leaders, President Volodymyr Zelensky emphasized that Ukraine’s strong position at any future negotiation table with Russia would depend on explicit security guarantees. “We want an end to the war, we want peace, but we need security guarantees to help us defend ourselves tomorrow. However, what Europe can offer will not be enough,” Zelensky stressed during a press conference, clarifying that “the true guarantee is NATO, which depends on the decisions of Europeans and Americans.”
