Simulations Extra money in Italians’ pockets in 2024 The reduction of the tax wedge and the Irpef reform will increase Italians’ paychecks in 2024. What about in 2025?

The first taste of a “new” Irpef and the cutting of the tax wedge are the most relevant measures of the 2024 maneuver set by the Meloni government. The measures are temporary; It does not reform either the tax system or the labor market and consumes more than half of the available resources (about 13.4 billion euros) to be financed by the deficit. The fact is that in 2024 tens of millions of Italians will gain significant savings in their salaries thanks to the reduction in taxes to be paid. But we also need to take into account a big unknown: What will happen in 2025?

New Irpef 2024, how the odds and brackets have changed: save

The government is giving a “taste” of the Irpef reform, which consists in rearranging rates and brackets. In fact, we cannot talk about a reform because the measure is only financed for one year. Of course, there will be savings that will translate into higher wages in 2024.

In the new Irpef, tranches have increased from four to three, while the current rate of the second tranche (income between 15,000 and 28,000 euros) has been merged with the first, reducing by two points from 25 percent to 23 percent. However, as seen in the table below, higher income rates remain unchanged.

23 percent up to 28,000 euros
35 percent From 28,001 to 50,000 Euros
43 percent 50,000 Euros and above

According to simulations carried out by the Parliamentary Budget Office (PBU), the changes will affect 22.8 million taxpayers and save around 190 euros on average. But some will be more advantageous than others: The more income rises, the greater the savings provided by the new rate. The table below summarizes the savings simulations and it is clear that taxpayers earning between 28,000 and 50,000 euros will benefit from the highest earnings.

Cutting the 2024 tax wedge: implications for payroll

The second fiscal package of the Meloni government for 2024 confirmed the cut in the tax wedge. Essentially, this is a deduction for social security contributions deducted from your monthly salary. Benefit percentages are the same as in 2023, but the exemption does not concern all employees: While the 6 percent deduction is applied to incomes between 35 thousand and 25 thousand euros, the “discount” percentage for those whose annual income is below 25 thousand euros increases to 7 percent.

Payroll increases in 2024 with 2024 tax wedge cut: table

The biggest beneficiaries of the tax wedge cut in 2024 will be employees with taxable income between 15,000 and 28,000 euros. As can be seen from the table above, which summarizes the effects of wage cuts by income brackets, the greatest benefits are provided to the lowest income groups.

Irpef and wedge are cut together, savings: table with simulations

In 2024, new Irpef rates and brackets, together with the cut in the tax wedge, will save Italians’ salaries. In documents attached to the hearing held in the joint Budget Committees of the House and Senate, the Parliamentary Budget Office calculated how many additional euros would be gained by simulating the impact of the two measures.

As can be seen in the table from the PBO simulation, the savings achieved by the joint action of the two measures are concentrated in the income brackets between 15 to 25 thousand euros and 25 to 28 thousand euros, with 994 euros per year. With 1,210 euros.

New Irpef and cutting the tax wedge: simulation with 2024 brackets

These measures consume more than half of the total resources envisaged for fiscal maneuvering and are valid only for 2024. In its opinion on the draft budget, the PBO underlined that this temporary structure “leads to less transparency in budget planning” and said: “Reforming the tax system through partial interventions could increase the complexity of the system and worsen existing critical problems.”

The unknowns of 2025

It is unclear what these measures will be after 2025. According to the Parliamentary Budget Office, measures valid for a single year “imply a commitment to finance them in subsequent years that do not come out of the budget” and “fuel uncertainty regarding the future evolution of fiscal policy”.

For the more expensive of the two, the cut in the tax wedge, the PBO notes that, given that it is currently deficit-financed, “a possible further extension would require the identification of structural coverage measures.” In the context of low economic growth and the updating of the new Stability Pact, it is not clear whether the measures will be expanded.

Source: Today IT