Italy’s economy grows modestly as households bear rising tax pressure
Italy’s economy expanded by 0.2% in the second quarter of 2026, according to confirmed data from Istat, matching preliminary figures released on 1 September. Annual growth reached 1.0% compared to the same period last year, while the carry-over growth for the full year stands at 0.8% — just below the government’s 1% target.
On the demand side, household spending and business investment each rose by 0.2%, while imports climbed 1.5% and exports increased by 1.0%. Net foreign demand offset domestic gains, leaving overall growth reliant on internal consumption and a minor uptick in inventories.
Supply-side trends revealed a clear divide: services grew 0.4%, offsetting declines in industry (-0.6%) and agriculture/fishing (-0.1%). This reinforces the pattern of a service-dominated recovery with limited industrial momentum.
Families consume more, save less, lose ground
Despite a 0.4% rise in nominal disposable income, household purchasing power fell by 0.9% in real terms. The implicit price index for consumption rose 1.4%, outpacing wage growth. As a result, spending surged 1.7%, forcing the national savings rate down to 6.7% — a drop of 1.2 percentage points from the first quarter.
This dynamic is intensifying strain on middle-income households. The CGIL has identified the rise in tax pressure as a major contributor, highlighting the ongoing impact of fiscal drag — where inflation pushes earners into higher tax brackets without real income gains. The union estimates this mechanism has drained over €30 billion from household budgets since 2022.
Tax burden hits highest level since 2015
Italy’s tax burden reached 43.5% of GDP in the second quarter — up 0.5 percentage points from 2025 — the highest since 2015. While the 2026 IRPEF reform lowered rates for incomes between €28,000 and €50,000, over 40% of the benefits flowed to those earning above €50,000. Workers and pensioners on fixed incomes, who see their nominal pay rise with inflation, bear the brunt as deductions remain unchanged.
The CGIL demands immediate indexation of income tax brackets to inflation. Without it, they warn the burden will deepen in the coming quarter, particularly as energy prices remain volatile due to geopolitical tensions.
Public finances show slight improvement — but spending pressure rises
Public sector borrowing improved, falling to -2.0% of GDP from -2.1% in 2025. The primary surplus — excluding interest payments — rose to +3.0% of GDP, up from 2.2%. Despite this, the government is preparing for a significant fiscal expansion.
A €29 billion deviation for energy and defence spending, approved by Parliament on 13 October, will absorb much of the margin available under EU rules. This leaves little room for other initiatives in 2027 — forcing a difficult trade-off between promises and fiscal discipline.
Budget proposals pile up — with no clear funding
The government’s proposed fiscal measures, totaling an estimated €10 billion in new costs, include:
• Extending the 33% IRPEF rate to incomes up to €60,000 (€2.6 billion cost)
• Extending the 2027 automobile tax exemption into a permanent cancellation (€5 billion per year)
• Reinstating the Ecobonus to 65% for home renovations (funding depends on EU green fund flexibility)
• Introducing a 5% flat tax on wage increases for workers under 35 (€350 million)
All require full fiscal coverage. Options under discussion include targeting windfall profits from energy firms, cracking down on tax evasion — estimated at over €100 billion annually — or raising VAT on non-essential goods. A wealth tax on assets over €5 million, proposed by the left, remains politically distant.
Political tensions mount as deadline approaches
Opposition parties seized on the data as a sign of policy failure. Francesco Boccia (PD) asked: "Is the government still blaming Istat for its own lack of planning?" Giuseppe Conte (M5S) accused ministers of "eroding the middle class through taxation, not support." AvS’s Angelo Bonelli called it "the accounting of failed choices."
With the draft 2027 budget scheduled for parliamentary debate by 20 October, the question is no longer whether Italy will grow — but who will carry the costs.
As families tighten belts and savings vanish, the coming months will test whether economic resilience is matched by social fairness.
