Pension cuts and lower taxes on labour: the Meloni government’s fiscal policy is causing embarrassment to both the right and the left

The Meloni government’s fiscal policy may not be a model of coherence, but it has a clear direction: to curb pension expenditure and use the resources to bolster the disposable income of employees and households.

The Budget Law confirms this approach. On the labour front, the second IRPEF tax bracket, with a rate of 33 per cent, has been extended up to 55,000 euros; according to ISTAT, this measure will affect 3.7 million taxpayers, with an average benefit of 450 euros. The preferential 5 per cent tax rate on pay rises resulting from contract renewals is confirmed. A 1 per cent tax rate is introduced for individual income increases for those under 30. As regards family policies, the bonus for working mothers is increased from 60 to 100 euros per month and parental leave is extended.

On the other hand, there is the issue of pensions. The budget measures reduce the indexation of medium-to-high pensions (more than four times the minimum). According to estimates presented at yesterday’s parliamentary hearing by Istat, over 3.5 million pensioners will receive 510 euros gross less than they would have under the old system, amounting to 290 euros net. For pensioners with incomes exceeding 50,000 euros, the combined effect of the cut in index-link adjustments and the cut in personal income tax reduces the loss to less than 100 euros net per year.

However, it is in Istat’s historical analysis that the key to understanding the overall direction of fiscal policy lies. From 2021 to 2027 (which therefore also includes the Draghi government), the various fiscal measures have resulted in an average cumulative nominal benefit of €1,000 for taxpayers. During the same period, however, fiscal drag has eaten into this, resulting in €1,100 in higher taxes. But this is an average: not everyone has fared in the same way. Istat estimates that, for workers, the net balance between fiscal drag and tax measures is a positive €50 per year. For pensioners, on the other hand, the net balance is negative by over 350 euros due to the lower revaluation of pensions and their exclusion from certain income tax deductions and bonuses specific to workers. Furthermore, this calculation does not include the increase – which exceeded inflation – in the Universal Child Allowance from which families with children have benefited.

In recent years, Minister Giorgetti has used inflation as a tool for redistribution. On the one hand, the failure to index-link personal income tax (Irpef) has boosted tax revenue through fiscal drainage; on the other, the reduction in pension equalisation has curbed pension expenditure. The resources thus recovered have been channelled partly towards tax cuts for workers and support for families, and partly towards reducing the deficit (which has fallen from 8.1 to 2.9 per cent).

There are other measures in between (such as the increase in the flat tax for the self-employed) and temporary bonuses, but the bulk of the resources mobilised reveals this underlying trend: pensioners have been called upon to contribute more towards balancing the books, whilst workers and households have been better protected from the effects of inflation. It is a redistributive policy that one may or may not agree with, but which is not discussed publicly in these terms. This is because the government has no interest in taking credit for the cuts to pensioners, whilst the opposition has no interest in acknowledging the support provided to workers.