Istalia

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Giunio passes income tax reform: fewer brackets, greater simplicity

The center-right reaches an agreement: from the old numerous brackets and hyper-progressive tax system to fewer and lower rates that are less penalizing for the middle class while maintaining a solidarity contribution for the wealthiest

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July 5656

ROMULA - After months of internal coalition negotiations, the second Giunio government approved in the Council of State the bill for the reform of the personal income tax (IRP), one of the center-right's flagship measures. The stated goal is to simplify the tax system, making it more fair, competitive, and conducive to growth.

Until now, the Istalian IRP was structured as a highly progressive system, with numerous brackets and highly progressive rates reaching up to 75% for the highest incomes. A structure that, according to the reform's proponents, penalized individual initiative, incentivized tax evasion, and made the system difficult to interpret for both taxpayers and businesses.

The road to an agreement was not easy. Democracy & Freedom, the coalition's main liberal party, had always supported a flat 20% tax rate, accompanied by deductions for lower incomes, while the Liberal Republican Party advocated a drastic simplification to three tax brackets (15%, 25%, and 35%) and the elimination of all deductions. On the other hand, the Hosian Democratic Union and the more progressive fringes of the National Liberal Party opposed solutions they deemed too biased in favor of high incomes, demanding that the system remain progressive and capable of guaranteeing adequate revenue for public services.

The final result has been widely described as a balanced and realistic compromise: it cuts the complexity of the past, while maintaining the principle of progressivity. And an additional contribution is only required from those with very high incomes, at a time when the Istalian economy is experiencing sustained growth and unemployment levels are at historic lows.

The new scheme simplifies the tax by increasing the number of brackets to five, with clearer and more uniform rates. Here is the proposed new structure:

• Income up to 15,000 lira:       12%
  
• From 15,001 to 35,000 lira:    22%
  
• From 35,001 to 60,000 lira:    30%
  
• From 60,001 to 120,000 lira:  38%
  
• Above 120,000 lira:               45%
  

Alongside the ordinary reform, the government has introduced an extraordinary solidarity contribution: an additional 10% rate applied to the portion of income exceeding 300,000 lira per year. This way, the effective tax rate for that bracket reaches 55%, but only for the portion of income exceeding the threshold, without altering the simplified progressive system.

Fixed and simplified tax deductions for lower incomes are also introduced, while many bonuses and specific deductions are eliminated, replaced by a system of standard deductions for children, rent, and healthcare expenses.

Finance Minister Egidio Marconi, chosen at the beginning of Giunio's second term from the ranks of D&L but approved by UOD and the progressive wing of PNL for his more moderate positions, stated:

This reform is not a revolution, but it is a decisive step towards a simpler, more transparent, and more labor- and investment-friendly tax system.

According to the Finance Minister, the reform will have three main effects: it will stimulate consumption and private investment, increase tax compliance thanks to a more transparent system, and ease the bureaucratic burden for families and businesses.

Business associations and economic circles have welcomed the reform, emphasizing how the new structure can enhance the country's attractiveness and increase the disposable income of the middle class.

The left-wing opposition immediately raised its voice against the reform. The Democratic Socialist Party, the Party of New Communists, and the Greens' Movement issued a harsh joint statement, accusing the Junio government of wanting to dismantle the welfare state and reward the richest at the expense of the community.

This tax measure is yet another favor done to the economic elite. It reduces tax rates for medium- and high-income earners, abandons true progressivity, and forgoes funding for schools, healthcare, and public services. The so-called solidarity contribution is a fig leaf.

The three parties also denounce the lack of measures to combat poverty and challenge the idea that lower taxes would automatically lead to greater compliance and economic growth.

Under the guise of simplification, one of the fundamental instruments of social justice is being undermined. The center-right is choosing to side with those who have more.

The Red-Green front finally announced a major national demonstration, calling on citizens, unions, and civic movements to take to the streets to defend tax progressivity and the right to a fair and efficient public tax system.

The Finance Minister, however, retorted that increased tax revenues due to economic growth and greater compliance should offset the reduction in marginal tax rates.

The bill will now be considered by Congress, where the majority's numbers will ensure its approval by the spring. The new IRP would take effect starting next fiscal year.