(Bloomberg) --Italy has signed off on a EUR35 billion ($36 billion) budget law for next year which will raise a windfall tax on energy companies in order to expand aid to families and businesses hit by higher prices.
The new budget, the first presented by Giorgia Meloni's right-wing administration, plans to increase the tax rate on additional profits made by selling energy to 35% from the current 25% until mid 2023, according to a government statement released early on Tuesday. In 2023, the tax will be calculated on additional net income declared by companies selling energy at higher prices, and not on sales as it is done at the moment.
The law approved by the cabinet now faces long parliamentary scrutiny and is set to change before final approval. Some of the budget measures will stir political tension within the governing alliance, composed of Meloni's Brothers of Italy, Forza Italia and the League.
Political decision
A particularly divisive issue within Parliament will be the government plan to cancel over time a citizen income introduced by the government led by Giuseppe Conte, to instead finance measures to boost natality.
Over EUR21 billion of the budget will be allocated to relief for families and businesses facing high energy prices, adding to about EUR75 billion already spent by the government to keep the economy afloat. At the same time, the government is reducing a state-funded discount on gasoline prices to EUR0.15 per liter from EUR0.25 per liter.
While Italy's economic output grew 0.5% in the third quarter, a contraction is expected in the final three months of the year, Finance Minister Giancarlo Giorgetti told lawmakers in Rome earlier this month.
The budget law also earmarks funds for measures including:
- extending a flat tax rate on incomes of up to EUR85,000 for professionals and individual businesses;
- a minor review of the current pension systems;
- reducing VAT on basic goods for children;
- raising the limit on cash payments to EUR5,000 from EUR1,000;
- restarting work toward the construction of a bridge linking Sicily with mainland Italy.
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