The 1 per cent tax relief for under-35s is something of a bluff

In the end, it turned out just as expected. September is the month when the Minister for the Economy, Giancarlo Giorgetti – who has always been concerned about demographics and supply-side issues – puts forward proposals to support families and young people. But then comes October, the month when the leaves fall and so do the illusions, with political reality taking over and putting summer’s good intentions into perspective. This has happened in previous years with the various proposals on the ‘family quotient’ and ‘zero tax’ for those raising children. And that is exactly how it went this year too, on the issue of young people.

Giorgetti had announced the introduction of a ‘tax incentive’, to be linked to employers’ willingness to raise wages, aimed at increasing young people’s salaries to prevent a brain drain abroad. However, such an ambitious goal came up against a lack of resources and, above all, competition from other electoral priorities. Thus, pensions have, once again, taken precedence over young people: the fund for flexible retirement championed by Salvini, with an allocation of 850 million, carries far more weight than the 1 per cent incremental flat tax in favour of young people. 

The measure, announced by Prime Minister Giorgia Meloni, is a tax relief scheme for those under 35, with a tax rate of 1 per cent on salary increases of up to 2,500 euros and below a certain income threshold. The details are yet to be finalised; for example, it is not yet known what the income threshold will be (which could be €33,000, the limit already set for the tax relief on contractual pay rises) and it is unclear whether the measure is aimed at those under 30 or extends to those under 35. Calculations are ongoing and the thresholds will be determined based on financial availability. In any case, as mentioned, the relief is expected to operate as an ‘incremental flat tax’, which the government had introduced at 15 per cent in 2023 for the self-employed (though this lasted only one year) and last year at 5 per cent for contract renewals (confirmed by this Budget Law): any young person who receives a pay rise – whether due to a change of contract or an upgrade in qualifications – is taxed at a preferential rate of 1 per cent on the increase in income, up to a maximum of 2,500 euros.

What does this actually mean in practice? Given that the standard tax rate is 23 per cent on income up to 28,000 euros – a figure close to the threshold – the maximum benefit can amount to 550 euros per year (40 euros per month over thirteen monthly payments) and can reach 800 euros (60 euros per month) if the maximum increase were to apply to the second tax bracket with a rate of 33 per cent. But this is an extreme case, as it specifically concerns young people with an income well above the average who receive the maximum increase. Moreover, this tax relief interacts with other existing substitute tax schemes. If, for example, a young person were to receive a pay rise following the renewal of the national collective labour agreement (CCNL), the benefit would not be relative to the standard IRPEF rate, but to the 5 per cent substitute tax rate on contract renewals: a maximum of 100 euros per year (8 euros per month). If, on the other hand, the increase in income were to result from a productivity bonus, then there would be no benefit for those under 35 because, in that case, the 1 per cent substitute tax on bonuses already applies.

Moreover, the allocated funds – rumoured to be in the region of a few hundred million whilst the technical report is being finalised – are well below the 850 million earmarked for early retirement. It must also be borne in mind that, according to statements by Lega undersecretary Claudio Durigon, the new ‘Quota 100’ scheme championed by Matteo Salvini will apply to a limited group of 60,000 potential beneficiaries, whilst in the case of tax relief for the under-35s, the more modest budget is aimed at a population of over 5 million workers. Moreover, the measure is annual and, even if made permanent, like any ‘incremental flat tax’ it yields only a temporary benefit: in subsequent years, the increased income reverts to the standard tax regime and therefore, in the absence of further increases, may even lead to higher taxation and a reduction in net income. In short, this is a measure that may yield a benefit of around a hundred euros for just one year. It is unlikely to be enough to retain young people who are considering emigrating in search of higher wages. The risk is that they will use this bonus to buy a plane ticket to seek their fortune abroad: they should be able to manage it, if they choose a low-cost airline.