Italians pay more tax, which the state uses to pay more interest on the debt

In the general government accounts for the second quarter of 2026 published by Istat, one figure stands out: the tax burden has reached 43.5 per cent, half a percentage point higher than in the same quarter of 2025. This figure is particularly significant from a historical perspective, as 43.5 per cent represents the highest level ever recorded in the second quarter of the year, surpassing the previous high of 43.4 per cent reached in 2013 (under the Monti government). The most interesting comparison, however, is with the pre-pandemic period, given that in the second quarter of 2019 the tax burden stood at 40.5 per cent: exactly 3 percentage points lower than today.

The rise in the tax burden must be viewed in the context of the overall trend in public finances. During the same period, in fact, the share of public expenditure also increased, with total expenditure rising to 50.9 per cent of GDP, approximately 0.8 percentage points higher than in the second quarter of 2025. 

Revenue has risen from 48 to 48.9 per cent, demonstrating once again how illogical and utopian it is to claim that the tax burden can be permanently reduced if expenditure continues to absorb such a high and growing share of national income. Looking at the breakdown of expenditure, an even more significant factor emerges: the sharp rise in interest payments (+19.7 per cent year-on-year), which rose from 23.9 to 28.6 billion euros in the second quarter, with an increase of almost 5 billion euros in expenditure alone accounting for almost half of the overall rise in expenditure.

The most worrying aspect is that this is an item of expenditure beyond the government’s direct control. This trend is hardly temporary and reflects a shift in the macroeconomic regime that continues to be underestimated in the Italian debate. The long period of exceptionally low interest rates that characterised the aftermath of the global financial crisis is now behind us, whilst the new equilibrium is characterised by structurally higher nominal rates – partly because the global economy has shown a greater capacity to generate growth compared with the years following 2008, and partly because inflation and higher public deficits mean that investors are demanding a higher risk premium than in the past. Both factors are at play in the rise in Italy’s interest expenditure: the increase in government bond yields and, to a lesser extent, the impact of inflation on index-linked bonds.

For a country with a very high level of public debt such as Italy, this transformation has significant consequences, because the rise in yields is gradually passed on to the average cost of debt as securities are refinanced, making it progressively more expensive to maintain the same stock of debt and thus reducing the fiscal space available to finance other components of public expenditure: the so-called ‘snowball effect’ worsens, and a higher primary surplus is required to prevent the debt-to-GDP ratio from rising.

For this reason, a return to a world of higher interest rates would have required a swifter adjustment of public finances and a higher primary balance, whilst Italy’s projected primary surplus of 1.2 per cent in 2026 remains below the levels seen before the pandemic (1.9 per cent in 2019), despite a tax burden that has since reached record levels and has benefited from the effects of inflation on nominal revenue and fiscal drag. The result is a rather unusual combination, because in the second quarter of 2026, Italy recorded the highest tax burden ever observed in that quarter and, at the same time, public expenditure exceeding 50 per cent of GDP, whilst a growing share of the increased revenue is being absorbed by debt servicing rather than being channelled into greater fiscal space for other policies.

This is precisely the most significant point, both politically and economically. Italians have felt the increase in public spending relatively little, whilst many have certainly felt the impact of fiscal drag, especially at a time when real incomes have not fully recovered the loss of purchasing power caused by inflation (in the second quarter of 2026, household purchasing power fell by 0.9 per cent).

The Istat snapshot therefore reveals a problem that runs deeper than simply a record level of tax burden, as it shows just how rapidly the rising cost of borrowing is re-imposing the budgetary constraint that had been eased for many years by extremely low interest rates and the ECB’s asset purchases. Politicians do not seem to realise the nature of this new macroeconomic regime – made financially more unstable by France’s fiscal crisis – but they should incorporate it, along with its constraints, into their election manifestos. Because in this context, their promises will be even less achievable.