The 2026 Budget Law: An Analysis of the Final Texts
- The manoeuvre increases the deficit by €0.8 billion in 2026, €5.7 billion in 2027, and €6.8 billion in 2028
- Parliamentary amendments slightly improve net borrowing
- Several tax measures have initially positive effects but subsequently negative effects and do not ensure structural resources
- Households receive €20 billion in net benefits over the three-year period, restrictive impact for firms and self-employed workers
- Pension measures have positive effects in the three-year period, but attention to long-term effects is needed
- Business incentives are broadened and extended over time, but laying on unchanged resources
A new Focus by the Parliamentary Budget Office (UPB) shows the financial and economic impacts of the 2026 budget law approved on 30 December 2025. The analysis, along with an infographic, also highlights the impact on beneficiary groups and the economic bases, the main amendments introduced during the parliamentary process and provides an in-depth examination of those concerning pensions and investment incentives for firms.
Public finance effects of the 2026–28 budget manoeuvre
Compared with the trend scenario, the manoeuvre entails an increase in net borrowing of 0.03 percentage points of GDP in 2026 (€0.8 billion), 0.2 in 2027 (€5.7 billion), and 0.3 in 2028 (€6.8 billion). The impact of the manoeuvre on the net expenditure indicator appears consistent with its annual growth targets. Over the three-year period, with respect to the unchanged legislation scenario, both net revenues and net expenditures increase, the latter mainly of a current nature. More than 20 per cent of financing resources in 2026 (€27.9 billion) come from lower expenditure following the sixth revision of the National Recovery and Resilience Plan (NRRP).
Several measures increasing the tax burden have initially positive effects but negative ones in subsequent years and therefore do not provide structural resources: revenue advancing measures would improve net borrowing in the years 2026–28 by €3.5, €3.8 and €1.3 billion respectively, but would worsen it from 2029 onwards. The manoeuvre foresees various temporary provisions which, if confirmed in following years, would worsen the deficit unless new sources of funding are found. The cost of temporary measures amounts to €7.6 billion in 2026, €6.8 billion in 2027, and €4.1 billion in 2028. Of these amounts, €4.7 billion in 2026, €4.6 billion in 2027, and €3.5 billion in 2028 relate to measures already financed in the past.
Households record a net benefit of €7 billion in 2026, €7.8 billion in 2027, and €5.4 billion in 2028. Net resources amounting to €7.9 billion cumulatively over 2026–28 are allocated on general measures; these include a two-percentage-point reduction in the second personal income tax rate (IRPEF). In contrast, firms and self-employed workers face a restrictive impact mainly due to revenue-side measures, which improve the budget balance by €1.3 billion in 2026, €5.1 billion in 2027, and €2.7 billion in 2028.
Lastly, the many new measures introduced by Parliament during the approval process overall led to a slight improvement in net borrowing: €157 million in 2026, €243 million in 2027, and €248 million in 2028.
Pensions
The approved package introduces a structural reform of supplementary pension system, focusing on tax incentives, with a steady-state cost for the State of €30.6 million, and the automatic enrolment for newly hired private-sector employees. It also expands the scope of firms required to transfer severance pay (TFR) contributions to the National Social Security Institute (INPS), lowering the threshold from the current 50 employees to 40 employees starting from 2032.
Once the transitional phase and the initial liquidity increase stemming from new TFR inflows are over, trends in contribution revenues and benefit expenditures will be strongly influenced by employment dynamics and by the flows of workers exiting the labour market and cashing out their TFR. The available data do not currently allow a full assessment of the balance between these two aggregates beyond 2035.
The virtual advance of accrued pension entitlements for early retirement would generate increasing savings up to €136.1 million by 2035, while a further €180 million annually from 2033 would stem from the reallocation of expenditure for strenuous and hazardous jobs.
The overall effects on public finance balances of repealing the provision that allowed notional aggregation of contribution entitlements, of the reduction of authorised expenditure and of the set of provisions modifying supplementary pensions and TFR amount to €1.2 billion in 2026, remaining positive but declining through 2032, before turning negative from 2033 and reaching €0.9 billion by 2035.
Business incentives
On the business incentives front, the increased depreciation allowances introduced by the 2026 Budget law will entail a cost of €8.4 billion over the period 2027–2034, representing an increase of €4.4 billion compared with the original draft bill. Extending the incentives until September 2028 provides firms with greater planning certainty, albeit with unchanged available resources.
For the Single Special Economic Zone (ZES), the parliamentary process expanded its geographical scope to include Marche and Umbria, while keeping the originally allocated resources for the three-year period unchanged at €4.4 billion. For this incentive, whose rates range from 15 to 70 per cent, uncertainty remains regarding the ex-post adjustment mechanism, which increases uncertainty and reduces its attractiveness: if applications exceed available funds, the actual benefit is proportionally scaled down, lowering the effective rate.
The parliamentary process also increased ZES funding for 2025 by €500 million, raising the average effective benefit from 70 to 75 per cent, and established a €1.3 billion fund to supplement allocations for tax credits related to investments in capital goods (Transition 4.0) in force in 2025, limited to those performed by 31 December 2025.
Text of document (in Italian)
Infographic