The abolition of road tax helps the less well-off and does not subsidise the consumption of fossil fuels. Analysis by the UPB

Is it possible to cut taxes, redistribute resources in favour of the poorest and reduce the impact of fuel costs without encouraging CO₂ emissions? It seems like an irreconcilable triangle. There is a widespread belief that tax cuts do not reach the poor, that redistributing resources requires raising taxes, and that reducing pollution necessitates increasing the cost of private transport. The government’s policy choices over the past year, however, may have found a different path. Rather than intervening further to reduce excise duties, the focus has shifted to vehicle tax. Meloni and Giorgetti’s decision was driven primarily by budgetary considerations (given that reducing excise duties was very costly) and strictly political ones (given that the abolition of vehicle tax is a long-standing flagship policy of the centre-right). However, as an analysis by the Parliamentary Budget Office (UPB) shows, the consequences are far-reaching.

Let’s start with the government’s measure. Last September’s decree provided (currently only for 2027, pending an announced structural provision in the Budget Bill) for an exemption from road tax on just one vehicle per taxpayer (the one with the lowest power output if the taxpayer owns more than one car) and with a power output of up to 80 kW. According to the technical report, the annual cost of the measure is approximately 2.4 billion euros and affects 13.2 million cars, with an average cost of 168.4 euros (a marginal proportion relates to motorbikes).

The ‘abolition of road tax on the first car’ – as the government has dubbed the measure – was introduced at the same time as the end of the reduction in fuel excise duties, which cost around 2.5 billion over six to seven months (double that on an annual basis). It is therefore clear that a political decision has been taken to tackle the same problem – high petrol prices – but by following a different logic: reducing a tax that targets vehicle ownership rather than fuel consumption. The measure therefore aims to redistribute resources, primarily in favour of those on the lowest incomes, but without directly subsidising the consumption of petrol and diesel. Do the effects match the intentions?

The Parliamentary Budget Office (UPB) has carried out an in-depth analysis of the issue, the data from which points in this direction. The fiscal authority highlights certain problems inherent in the motor vehicle tax: it is a property tax that is not closely linked to environmental externalities (it is levied on ownership rather than use); and it represents a greater proportion of the vehicle’s value for low-income households with small, old cars. In short: “The road tax is only weakly linked to the value of vehicles and their use, and varies little with households’ spending power”, thus placing a particularly heavy burden on the poorest households. In short, it is a tax that is “highly regressive in relation to household expenditure”.

The measure, with its limitations and restrictions, exempts 45 per cent of vehicles, benefiting 64 per cent of owners and 73 per cent of households. As road tax is highly regressive, its partial abolition ‘takes on a strongly progressive character’: on average, it accounts for 0.36 per cent of household expenditure, but rises to 0.9 per cent in the first (poorest) decile and falls to 0.1 per cent in the last (richest) decile. By contrast, the discount on excise duties is uniform across the entire distribution of purchasing power (0.2–0.3 per cent for both the rich and the poor) and is proportional to fuel consumption (and therefore to CO₂ emissions).

The UPB estimates that, compared with the increase in fuel expenditure – which averages 1.2 per cent of total household expenditure – the support measures are worth, on average, half that amount (0.6 per cent), of which two-thirds relates to the vehicle tax relief (0.4 per cent) and one-third to the reduction in excise duties (0.2 per cent). However, as mentioned, the distribution is in fact very different: the reduction in excise duties is proportional (acting as a sort of flat tax), whilst the reduction in road tax is progressive.

From this perspective, the policy decision also follows the IMF’s recommendations to seek targeted support, so as to reach those most in need, avoid spending too many resources and not encourage the consumption of a polluting and scarce commodity. The abolition of the road tax fits this profile perfectly. It also demonstrates that taxes can be reduced to tackle inequality, without wrecking public finances or harming the environment.

In this regard, if one considers that prior to the energy crisis, in early 2026, excise duties on petrol and diesel were also brought into line halfway through the process – a discrepancy that was deemed the main environmentally harmful subsidy (EHS) worth 2.5 billion – it can be said that the Meloni government has implemented a consistent policy of environmentally favourable taxation. However, this is probably an achievement that the ruling majority has no interest in claiming and the opposition has no incentive to acknowledge.