The Irpef reforms have helped those on low incomes. The UPB study

“The personal income tax reforms introduced since the 2000s, and in particular since 2014, have progressively strengthened support for low-level earned income, thereby enhancing the redistributive function of the tax for this group of taxpayers.” This is set out in black and white by the Parliamentary Budget Office, which, in its latest “Nota di lavoro”, focuses on the dynamics of private-sector employees’ wages in Italy from the 1990s to the present day, whilst also analysing the role of IRPEF reforms in supporting net wages. As we note here, several previous studies – ranging from the Bank of Italy to the ECB, and including the PBO – have already clearly shown that the Meloni government, through its tax reforms, has more than offset the tax drag whilst also increasing the progressivity of the tax system. It has therefore redistributed wealth more heavily in favour of lower-middle incomes. This stands in stark contrast to the view of CGIL leader Maurizio Landini, who argues that wages have lost purchasing power due to fiscal drag and that employment has risen significantly as a result of the full implementation of the Fornero reform. The UPB study sets the record straight. 

Against this backdrop, the picture is certainly not encouraging. According to OECD data, between 1990 and 2024, real gross wages per full-time equivalent employee in Italy fell by 1.6 per cent. By contrast, in other major advanced economies, they rose significantly. “This modest wage growth has been accompanied by an increase in part-time work, which has contributed to a reduction in annual earnings and a widening of the earnings gap,” emphasises the UPB. According to the UPB, however, it is precisely in this context that tax policy measures have made a positive contribution to workers’ wages. "The reforms have progressively reduced the tax burden on low and middle incomes, particularly following the introduction of the IRPEF bonus in 2014 and the 2025 reform, which incorporated social security contribution relief into the tax structure. Conversely,’ the study continues, ‘for higher incomes, the effective tax burden has increased, mainly as a result of tax erosion, due to the failure to index income brackets and other monetary parameters of the tax to inflation’. The threshold separating these two effects is approximately €35,100 per annum at 2026 prices: below this level, the 2026 system is more favourable than that of 1990, whilst above it is more onerous. During the same period, the number of workers in the lowest income brackets has also increased, mainly due to the rise in part-time work. Yet, the consequences of the changes to personal income tax are reflected in the trend in net earnings from employment. "The gaps between different segments of workers are narrowing in the transition from gross to net earnings, reducing the dispersion," says the UPB, although "whilst offsetting some gaps, such as those between manual workers and full-time white-collar workers, the tax does not eliminate the inequalities generated by the labour market".

To understand this better, we need to use some technical terms. “The increase in the redistributive effect of personal income tax is also evident from the summary indicators of inequality,” the study emphasises. These include the Gini coefficient, a measure used to gauge differences in income and quantify inequality: the lower the coefficient, the closer the situation is to perfect equality. As can be seen in the figure, whilst between 1990 and 2026 the Gini coefficient for gross income from private-sector employment rises from 0.330 to 0.403, that for net income increases at a more moderate rate, from 0.302 to 0.338. Consequently, the redistribution index – calculated as the difference between the two – doubles, rising from 0.028 to 0.065. 

The increase in the redistributive capacity of personal income tax (IRPEF) over the period 1990–2026 is mainly due to reforms targeting low and middle incomes, which account for 115.8 per cent of the overall increase. This is because they have primarily worked by increasing the progressivity of IRPEF and reducing the tax burden on these taxpayers. “Measures targeting higher incomes, on the other hand, have reduced both the progressivity and the average tax rate, resulting overall in a negative contribution to redistributive capacity.” It is therefore the tax reforms themselves that account for around 80 per cent of the increase in redistributive capacity observed over the period, according to the study.

Whilst it is not possible to establish a causal link between wage trends and tax reforms, the analysis nevertheless shows that personal income tax (IRPEF) has played an increasing role in offsetting the dispersion of gross earnings from employment. This also applies to previous parliamentary terms. “The increase in redistributive capacity is concentrated primarily in the 17th Parliament (2014–18), with the introduction of the IRPEF bonus, which accounts for around 39 per cent of the overall change, – the UPB points out – and in the 19th Parliament (2023–26), to which a further 26 per cent can be attributed thanks to measures targeting low and middle incomes, including the incorporation of social security contribution relief into personal income tax. A more modest contribution (14 per cent) was recorded during the 14th Parliament (2002–06)”.