Italy, tax revenues on the rise - Inflation, employment expansion boost profits and reduce budget deficit
Italy's tax revenues are growing faster than expected, thanks to rising employment and inflation. The trend is bringing the budget deficit back towards the European Union's 3% of GDP limit, a year earlier than planned.
Tax revenues rose by more than 16 billion euros between January and July, 5% more than in the same period last year, exceeding the Italian Treasury's forecast of just 0.8% expansion for the year as a whole. The government had estimated a deficit of 3.3% of GDP in 2025, but the additional tax revenues mean the fiscal gap is likely to be significantly lower.
Prime Minister Giorgia Meloni and her right-wing allies are taking credit for these positive figures, however, economists emphasize that this improvement comes mainly from factors not directly related to the government, which took office at the end of 2022. Analysts estimate that the anti-tax evasion reforms undertaken over the years are yielding results, although a large part of the "weight" falls on the effect of inflation and employment growth, with around 2 million new jobs created in the last four years, which have increased tax revenues.
Meloni often cites the increase in employment as a success of her government, but does not mention the “fiscal drag,” a simple economic phenomenon where inflation and nominal wage growth increase the percentage of income tax, bringing more money into the state coffers. Experts estimate that thanks to this effect, the state has collected about 25 billion euros more from 2021 to 2024, while revenues continue to grow this year.
Consumer prices in Italy have risen by 19% since 2020. Wages have also increased in nominal terms, but less than inflation, leaving ordinary citizens worse off economically. Real incomes in Italy, adjusted for inflation, are currently below their 1990 level.
In contrast, in Germany, the government adjusts income tax limits every year to fully compensate for the effect of inflation.
The improvement in Italy's public finances is also the result of new rules gradually introduced since 2011, which have narrowed the possibilities for tax evasion. Successive governments have promoted traceable digital payments and strengthened controls.
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