The tax reform approved by the Meloni government has at its center a revision of the Irpef, i.e. the income tax. The government has announced that it will lower the number of personal income tax rates from four to three, but the timing is not certain: special decrees will be needed to put the planned changes into practice.
The tax reform of the Meloni government has at its center a review of the personal income tax rates, i.e. the income tax that most Italians pay. In the text approved yesterday, however, there are no precise indications. Since it is an enabling law, Parliament will have to approve it and then the ball will return to the government, which will have two years to put all the changes envisaged into practice. Also with regard to personal income tax, therefore, it will still take several months before we see effective changes, and the new rates will not apply before 2024.
The text of the new bill says that, as far as personal income tax is concerned, it intends to proceed with a “review and gradual reduction“, always maintaining the “principle of progressivity” (i.e. the idea that whoever earns the most pays the most taxes, envisaged by the Constitution) and with the prospect of arriving in the future at a “single tax rate”, i.e. the flat tax for everyone. To do this, the government also proposes to rearrange “the income brackets and tax rates”.
Several government officials, including Prime Minister Giorgia Meloni, have clarified that the first step will be a reduction of the number of tax rates from four to three, and today the president gave a further indication: speaking at the CGIL national congress she said that the government intends to “significantly expand the first bracket, the one with the lowest rate”. This has led us to think that, among the hypotheses circulated in recent days, one in particular is close to what will be the reform actually carried out by the government in the coming months.
Tax reform of the Meloni government, who benefits from it and how the Irpef rates can change
The most probable hypothesis on the three personal income tax rates and who would pay less taxes
Currently, the income tax provides four brackets of income. It was reformulated in this way by the Draghi government – previously there were five brackets – and, as is normal, the brackets with the highest income are also entitled to the highest rates to be paid to the state. The division is this:
- Up to 15 thousand euros of income, 23% is paid. An even lower income bracket is excluded, known as the no-tax area, which does not pay personal income tax. Even on the no-tax area, the Meloni government has decided to intervene.
- From 15,000 to 28,000 euros of income, 25% is paid.
- From 28,000 to 50,000 euros of income, 35% is paid.
- Over 50 thousand euros of annual income, 43% is paid.
This is the current subdivision, which, it should be remembered, will almost certainly remain in force throughout 2023. As regards the new division with three personal income tax rateshowever, the most plausible hypothesis after the words of Giorgia Meloni is the one that provides for these three rates:
- Up to 28 thousand euros of income, 23% is paid. Also in this case, as mentioned, a lower no-tax area range is excluded.
- From 28,000 to 50,000 euros of income, 35% is paid.
- Over 50 thousand euros of income, 43% is paid.
This reform merges the first two personal income tax brackets of the current division, while keeping the other two unchanged. According to estimates by the Ministry of the Economy, this change would cause the state coffers to lose around 3-4 billion euros, a small sum compared to other hypotheses of larger cuts in income tax.
The most direct earners would be people with a income between 15,000 and 28,000 euros per year. For them, in fact, the rate would drop by two percentage points, from 25% to 23%. The gain would then also extend to the higher brackets: according to how Irpef is calculated, in fact, those who earn more than 50 thousand euros would still pay 23% on the first 28 thousand euros earned, then 35% on the part from 28 thousand to 50 thousand euros and the 43% on the rest, as is the case today. Looking at the absolute figures, for those who earn 28,000 euros or more each year, the discount on Irpef would be 260 euro. For those who earn less, the discount percentage remains the same but the absolute numbers go down.
It must be considered that in the annual expenditure for taxes not only the personal income tax will weigh, but also the various ones tax deductions, exemptions, credits and discounts that you can apply to your taxes. A draft of the enabling law on tax reform explained that there are currently more than 600, and that they occupy about 165 billion euros in taxes. The government intends to review them, reducing them – again progressively, to give those with higher incomes fewer discounts – but only when the framework of the new exemptions is clear will it be possible to know in detail how much each income group saves.