Italy’s €23.5bn budget takes shape. Here’s why Brussels may not buy it

ROME — Italy’s new budget framework has arrived, carrying a total price tag of €23.5 billion. For now, however, it remains little more than an outline, with key details hinging on negotiations with the European Commission over flexibility rules for energy spending—a central component of the package.In the meantime, the government has set out the main measures in its 44 page- Draft Budgetary Plan (DBP), submitted to both Brussels and the Italian Parliament. At the heart of the budget are two main pillars: “protecting households’ purchasing power, with particular attention to the most vulnerable,” and “supporting businesses and investments.” Key spending allocations The major budget line items consist of: ● Family policies and social spending: €5 billion ● Defense: €4.5 billion ● Business support: €3.4 billion ● Infrastructure: €3.1 billion ● Healthcare: €2.4 billion ● Tax measures: €2.1 billion ● Court ruling fund (fondo sentenze): €1.9 billion ● Local authorities: €240 million An additional €720 million is listed under "other spending/measures", with no additional details provided, bringing the total package to €23.5 billion. Leveraging EU flexibility rules, the draft budget aims to bolster "national defense and energy security." Green funding will focus primarily on upgrading the rail network and improving public infrastructure, "particularly schools, hospitals, universities, sports facilities, and hydroelectric reservoirs." According to the DBP, measures aimed at businesses will focus on "boosting the competitiveness of the productive sector, providing relief on electricity costs for a part of their consumption, and ensuring energy security, notably through increased investment grants for solar installations." In short: relief from high utility bills and support for clean energy expansion. Revenue sources and funding coverage So who pays for the €23.5 billion package? The DBP outlines several funding sources.At the top of the list is the financial sector (banks and insurance companies), which is expected to contribute €5 billion, as part of a broader €10.5 billion contribution over the 2027-2029 period. Government ministries will also undergo a new spending review, contributing €1.2 billion to the budget, followed by a further €1.9 billion in both 2028 and 2029.The gaming sector will generate further revenue: €718 million in 2027, €718 million in 2028, and €478 million the following year.Unspecified "other revenues and funding sources " round out the picture, but the bulk of the funding will come from flexibility provisions energy and defense spending, worth €14.3 billion. An unfinished budget The government notes that the final details of the budget measures, "to be presented to Parliament shortly," will depend on "the outcome of ongoing discussions with the European Commission regarding the precise scope" of the flexibility mechanisms.At the center of talks with Brussels is €14 billion in energy spending to be financed through EU flexibility rules, half of which would feed directly into the budget. Italy has asked the EU to remove the two-year time limit on investments (currently set to expire at the end of 2028). Without this adjustment, Rome argues, measures such as the 65% ecobonus tax deduction for primary residences—designed to encourage energy efficiency and savings in home—would be difficult to implement given their longer time horizons. The nature of the proposed measures is also under scrutiny. Several items submitted by Italy may conflict with EU flexibility criteria, which prohibit using funds for direct subsidies such as utility bill relief or fuel duty cuts. In particular, the "energy release" scheme—under which energy is sold to businesses at reduced prices in exchange for clean energy to be returned in future years—is under scrutiny, as it could be classified as State aid and therefore as a subsidy. Banking sector pushback Financial institutions are waiting for further details on their expected contribution to the budget. Several industry sources say banks remain opposed to any further contribution, pointing out that a three-year agreement worth around €10-billion was already reached last year. News of the new contribution came without any prior negotiations or warning. Moreover, sources note, the DBP vaguely refers to the "financial sector" without clarifying how the burden will be split among banks, insurers, and other financial institutions. This article was reviewed by an external translation partner