Italian Prime Minister Giorgia Meloni and her coalition government are grappling with a significant fiscal challenge: a €12 billion ($13.4 billion) budget shortfall. To bridge this gap, they are considering a series of measures, including cost reductions and adjustments to the retirement age, according to sources familiar with the discussions.
As the coalition prepares for a crucial meeting on Friday, the pressure is mounting to identify an additional €25 billion needed for the 2025 budget, with only half of that amount currently accounted for. The decisions made at this first major post-summer gathering will set the stage for the upcoming fiscal year’s budget. Finance Minister Giancarlo Giorgetti faces a deadline of September 20 to present a fiscal plan to the European Union that aims to bring Italy’s deficit closer to the EU’s 3% limit.
The Finance Ministry has indicated that the plan will be submitted by mid-September, dismissing current media speculation about its contents as premature.
Since taking office in 2022, Meloni’s administration has balanced fiscal prudence with targeted economic stimulus, which has supported solid economic growth while reducing the spread between Italian and German bonds to a two-year low earlier this year.
However, adhering to the EU’s updated fiscal guidelines will complicate this balancing act. The 2025 budget will be a critical test of the coalition’s ability to honor its commitments to voters while managing internal tensions and improving public finances.
Adding to the complexity, coalition partner Matteo Salvini, leader of the League party, has pledged to renew a reduction in the tax wedge—a measure that would cost approximately €10 billion. A finance ministry official has confirmed that this measure is now part of the budget plan. Other promises from the coalition, such as reducing tax brackets (estimated to cost around €4 billion) and introducing tax breaks for young people, working women, mothers, and the economically disadvantaged, may also need to be honored.
Despite Salvini’s recent assurances in Rimini that the government is prepared to do “even more, depending on available resources,” the reality is that these resources are increasingly scarce.
One of the potential measures under discussion is offering incentives for workers who qualify for early retirement to delay their exit from the workforce. Additionally, ministries may be asked to double their cost-cutting efforts, potentially increasing savings from the currently targeted €2 billion.
For Finance Minister Giorgetti, the outcome will be a draft structural budget plan, due later this month, in which Italy will commit to the EU to adhere to spending limits over the next four years. This plan is crucial as Italy attempts to manage its debt, projected to peak at nearly 140% of GDP by 2026. In the weeks that follow, ratings agencies will closely scrutinize Italy’s fiscal position.
As Meloni navigates the complexities of EU compliance and seeks to reassure investors, she must also manage internal coalition dynamics. Tensions frequently arise between Salvini and another coalition partner, Antonio Tajani, leader of Forza Italia, the party once led by the late former Prime Minister Silvio Berlusconi.
A recent dispute between Salvini and Tajani over citizenship laws—specifically, whether individuals who have completed most of their education in Italy should be eligible for naturalization—highlights the ideological divides within the coalition. These ongoing disagreements, spanning topics from immigration to fiscal policy, require Meloni to continuously play the role of mediator.
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