Italy Targets over $12.8 Billion from Banks to Bolster Public Finances

Italy is planning to raise more than €11 billion ($12.8 billion) from banks and insurance companies between 2026 and 2028 as part of a permanent fiscal measure aimed at strengthening the country’s public finances, according to a draft budget proposal submitted to European authorities this week.

The measure, equivalent to 0.19% of GDP in both 2026 and 2027, and 0.1% in 2028, is not a one-off levy, but a recurring contribution. However, the draft did not specify the exact mechanisms through which the government intends to collect the funds, leaving banks and insurers wary of what may lie ahead.

The proposal is already stoking tensions between Prime Minister Giorgia Meloni’s right-wing coalition government and Italy’s powerful financial sector. Lobby groups representing banks and insurers have voiced concern over the plan, while divisions have emerged within the ruling coalition itself.

Italian Economy Minister Giancarlo Giorgetti, a key figure in the far-right League party, defended the move by pointing to the sector’s soaring profits in recent years. “The financial sector has made astronomical profits over the past five years,” Giorgetti said. “It is time for them to contribute more to the country’s fiscal stability.”

But not everyone within the government is on board. Forza Italia, a junior coalition partner, has openly rejected any form of forced tax on bank profits, warning that such measures could damage investor confidence and undermine financial stability.

In 2023, the government faced backlash after attempting to impose a 40% windfall tax on banks’ interest-driven profits. That move triggered a sharp sell-off in banking stocks, forcing the government to quickly scale back the plan.

Despite the proposed levy, the broader budget signals expansionary fiscal policy. The Meloni government plans to implement annual tax cuts worth €18 billion until 2028, funded through new revenues and selective reductions in public spending.

One major tax cut involves lowering the second income tax bracket from 35% to 33%, at an estimated cost of €8.5 billion over three years. Meanwhile, retirement reform measures include a temporary three-month freeze on raising the pension age for workers in high-risk occupations.

The budget also allocates a significant increase in defense spending, 0.5% of GDP through 2028, in line with NATO commitments and pressure from European allies. At the same time, Italy aims to gradually reduce its budget deficit to 2.8% of GDP by 2026, down from an expected 3% this year.

Though the numbers have been laid out, the lack of clarity around how the bank and insurer contributions will be structured has raised alarm in the financial community. Italy’s banking association has instead proposed extending a freeze on deferred tax assets, a temporary liquidity-enhancing measure introduced last year, as an alternative.

The full details of the budget plan are expected to be unveiled after a cabinet meeting scheduled for Friday, where internal political disagreements may come to a head.

For now, Rome’s message is clear: with fiscal tightening on the horizon and Europe watching closely, the Italian government is asking its financial giants to do more of the heavy lifting.