The new Italian Budget Act was recently signed by the president of the Republic, Sergio Mattarella. Among the important measures that it includes, one has been widely commented on the Italian media: the reduction of the Italian tax wedge, which is among the highest in Europe. In sum, the threshold for tax benefits is raised from its previous cap of an annual income of 35 000€ to 40 000€, and it consists in reduced social security payments. Beneficiaries are expected to reach over 14 million Italian citizens, which is 1.3 million additional workers with respect to last year.
The reason for this decision was to avoid the so-called “35 000€ trap” of previous budget acts, in which incomes of 34 000€ obtained a higher net paycheck than someone that earned 35 000€. On the other hand, the benefits for lower levels of income are quite similar to previous Budget Acts but with more complicated calculations, leaving an ambiguous result on net income. Moreover, those with an income higher to 40 000€ will not receive any benefits regarding social security payments.
In spite of the positive outlook expressed by finance minister Giorgetti, we must stay skeptical and calmly analyze the effects that this measure, along with the whole Budget Act, might have on the overall well-being of Italian workers. In fact, only those who earn between 35 000 and 40 000 euros have secured benefits, while those with lower levels of income must compare their paychecks to those of previous years to see if they obtained an increase in their wealth.
Author: Luis Cabezas
Photo: Freepik