On December 30, 2025, the Italian Chamber of Deputies finally approved the 2026 budget bill drafted under Giancarlo Giorgetti, Minister of Economy and Finance in the government led by Giorgia Meloni. Now that the bill has become law, the administration is moving forward with its implementation.
Left-wing parties, specifically the Democratic Party and the Five Star Movement, have been vociferous in criticizing the budget package for allegedly being too austere, whereas the governing coalition and broad right-wing establishment have welcomed it, claiming that it adequately prioritizes the needs of families, workers, businesses, and healthcare. Even international actors, like the IMF Managing Director Kristalina Georgieva, appear to be on board, having described Italian public finances as “an anchor of stability in Europe.”1 Which side has the better case?
Private vs. “Public” Accounting
To navigate the intricacies of public policies and form a sound judgment on the matter, it is always best to begin from first principles and from an understanding of the nature of things.
The purpose of accounting is to inform economic agents about the results of their actions, enabling them to assess their social position and rationally guide their production and investment plans. This presupposes, however, that the agents whose activities are objects of calculation are fully integrated into the social division of labor and contribute to the satisfaction of each other’s desires, putting their scarce resources and specialized knowledge at the service of their fellow men.
This condition does not hold in the case of “public” or state budgets. To use a formula coined by German statistician George Friedrich Knapp, “centric payments”2 — the revenues and expenditures of the public administration—do not derive from previous acts of original appropriation, nor do they refer to productive or catallactic processes subject to price-quality competition and the daily plebiscite of consumers. They are based, rather, on the legal monopoly of ultimate decision-making and on the institutional aggression against natural owners, private producers and voluntary contractors of economic goods that such a monopoly implies and makes effective on a massive scale.3
Calculational Chaos and Widespread Inefficiencies
In the early 1940s, in his grand oeuvre Capitalism, Socialism and Democracy, Joseph Schumpeter observed that members of the public sector, far from being self-sustaining, live off “a revenue which was being produced in the private sphere for private purposes and had to be deflected from these purposes by political force.”4
Because state activity parasitically draws on private funds and diverts scarce resources from the pattern determined by voluntary production and exchange, public accounting and public finance are not only uninformed, ad intra, by economizing considerations—and therefore irrational—but also sources and vehicles, ad extra, of “calculational chaos.”5 Moreover, by interfering with the ability of entrepreneurs—organizers of production under uncertainty—to appropriate the fruits of their future-oriented endeavors, they undermine the framework that fosters entrepreneurial creativity and coordination. It follows that, ceteris paribus, the larger the public balance sheet, the narrower, more disjointed, and less dynamically efficient the productive and occupational structure of a society tends to be.6
Objective and Concerns of the Budget Bill
The stated goal of this budget law is to reduce, following EU directives, the level of net indebtedness from 2.8% to 2.3% of GDP by 2028. A commendable goal that, however, given the foregoing considerations, only makes sense if it is aimed at, or accompanied by, a reduction in the fiscal burden on the economy, i.e. on the private balance sheets of households and firms.
What makes Italy relatively unattractive to international capitalists and entrepreneurs is not its level of net indebtedness per se, but its punitive tax and regulatory system.7 According to the International Tax Competitiveness Index compiled by the Tax Foundation, Italy’s tax system is the least competitive in the OECD after France.8 Having a significant impact on this outcome is its corporate tax rate of 27.8%, noticeably above the OECD average (23.9%), along with heavy social security “contributions” and other relatively high levies, like the VAT rate (22%).9 In this context, one wonders how a €22 billion budget package—leading only to a gradual reduction in the pace of deficit finance—could reverse these structural problems. GDP growth, not coincidentally, is expected to stagnate, oscillating between 0.5% and 0.8%.10
Timid Measures in the Right Direction
An old precept of scholastic doctrine, going back at least to Saint Augustine, teaches that evil— the absence of good or privatio boni—is not absolute.11 So it is with this budget bill: not everything it contains constitutes bad news.
The Meloni government plans to reduce, from 35% to 33%, the second income tax (IRPEF) bracket, affecting wages between €28,000 and €50,000. This, along with relief mechanisms for contract renewals and productivity bonuses, increases the net marginal income of lower and middle-income workers, thereby encouraging a greater quantity of labor supplied. While timid in scope, these measures move in the right direction.
The executive plans to extend the hyper-amortization law for investment in high-tech capital equipment, as well as the various packages of exemptions and deductions. These may also pass the test. It would be advisable to widen these measures to all individuals and sectors to avoid allocative distortions, supply chain bottlenecks and discretionary privileges that invite cronyism. Still, it is important not to confuse a tax credit—which, however selective and partial, allows economic agents to retain and spend more of their own money—with a subsidy, which instead always implies additional resource extraction and unproductive intermediation by the state apparatus.12
The Bigger Picture: More Statism and Interventionism
Despite these timid measures in the right direction, the alliance between government, business and finance, which has been penalizing productivity and dynamic efficiency in Italy for more than two decades, emerges strengthened from this budget bill.
The corporate tax remains at its highly uncompetitive rate, and the net tax burden, which rose from 41.4% to 42.8% of GDP over the past two years, is set to increase further. Several interventionist measures contribute to this outcome, including an increase in the tax rate on capital gains from cryptocurrencies, from 27% to 33%; added costs and regulations on short-term rentals; a two percentage point increase, from 4,65% to 6,65%, in the regional tax on productive enterprises (IRAP) applied to banks, financial firms and insurance companies, and amounting to an extra €4.4 billion; a doubling of the “Tobin tax” on financial transactions; a €2 lump sum tariff on extra-EU parcels up to €150 and higher excise duties on fuel and tobacco derived products.
Less Mobile Wealth and More Political Consumption
Furthermore, after raising the annual flat tax for wealthy foreigners willing to reside in Italy from €100,000 to €200,000, the government now intends to increase it further to €300,000, expecting to collect an additional several hundred million euros.13 The underlying assumption seems to be that wealthy individuals do not pay their “fair share” and sit on an almost inexhaustible reservoir of idle cash. In reality, though, tax hikes on the rich erode productive capital, reducing the pool of funding that would otherwise be available to further industrial, commercial, and cultural ventures. Moreover, by making Italy a less attractive destination for mobile wealth, the burden of this policy will ultimately have to fall on domiciled owners and producers, leading to relatively stagnant residential and property values. As a result, Italy’s real estate patrimony and cultural heritage—among the nation’s greatest treasures—are likely to suffer, more than they would otherwise. Meanwhile, one can expect the market for short-term rentals to become more profitable at the margin and accordingly expand, further encouraging the transformation of historic and family residences into bed-and-breakfast accommodations—precisely the outcome the government claims that it intends to avoid.
Government outlays, which currently absorb more than half of national income, are projected to grow along with taxation, by approximately 2.5%. This growth is primarily driven by political consumption and welfare measures, including higher arms spending, enhanced bonuses for mothers and schoolbooks, an established fund for separated and divorced parents, and a strengthening of parental leave, sick children’s leave, public healthcare and pensions. Good intentions notwithstanding, these “social” policies encourage state dependency and control (protego ergo obligo, recites a Latin motto) and undermine the capital structure on which technological progress, sustainable employment, rising wages, and the well-being of future generations depend. The harm done to this last category is compounded by the consequent rise in public debt, projected to increase from 136.2% to 137.4% of GDP by the end of 2026.14
Toward Sound Fiscal Reform
A budget bill that seeks to combine rigor and genuine growth must recognize the anti-economic nature of public accounting and finance. Something that socialists, of all stripes, persistently ignore.
In the 20th century, this ignorance probably found its best expression in the “anti-economics” of Vladimir Lenin. This icon of revolutionary socialism believed that bureaucrats could rationally organize social production merely by appealing to the system of “accounting and control” regulating business, since capitalism had reduced it “to the extraordinarily simple operations—which any literate person can perform—of supervising and recording, knowledge of the four rules of arithmetic, and issuing appropriate receipts.”15 Contemporary analysts and politicians, from the Left and the Right, who fail to grasp the categorical distinction between private and public finance may be regarded—in this respect at least—as Lenin’s intellectual heirs.16
From the standpoint of economic efficiency and social welfare, the ideal policy would involve abolishing public finance and national accounting altogether.17 Short of this goal, the Italian government would do well to balance the books by cutting spending, debt, levies, regulations and subsidies, starting with those that directly produce “bads” and moral hazard.18 Cancelling, or at least drastically reducing, the massive stock of state-backed loans, which distort credit valuations and subsidize excessive risk-taking, would be a good start.19
When it comes to fiscal reform, the Right—in Italy and abroad—should never lose sight of the lesson articulated by the classical and proto-Austrian economist Jean-Baptiste Say, founder of the French liberal school: “The best scheme of finance is, to spend as little as possible; and the best tax is always the lightest.”20
- 1
Quoted in “2026 budget passed into law”, Ansa English Desk, December 30th, 2025.
- 2
George Friedrich Knapp, The State Theory of Money, Macmillan & Company Limited, London, 1924 [1905], p. 96.
- 3
See Franz Oppenheimer, The State, Vanguard Press, New York, 1926, pp. 24-27; Albert J. Nock, Our Enemy, The State, The Caxton Printers, Caldwell, Idaho, 1950, pp. 44-50; Murray N. Rothbard, Anatomy of the State, Ludwig von Mises Institute, Auburn, Alabama, 2009 [1974], pp. 13-17; Hans-Hermann Hoppe, The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy, Ludwig von Mises Institute, Auburn, Alabama, 2006 [1990], pp. 33-75.
- 4
Joseph Alois Schumpeter, Capitalism, Socialism and Democracy, Harper and Bros, New York, 1942, p. 198.
- 5
See Murray N. Rothbard, Man, Economy, and State with Power and Market, Ludwig von Mises Institute, 2009 [1962], pp. 952-53 and p. 1364.
- 6
See Jesús Huerta de Soto, The Theory of Dynamic Efficiency, Routledge, London, 2009, pp. 26-27.
- 7
This is not a new phenomenon, but one that can be traced back to the second half of the 1960’s, when Italy experienced a rapid increase in political consumption, trade union privileges, and social policies. After 1969, the two fastest-growing sectors in the Italian economy were the public sector and the underground economy, comprised of small businesses that, to remain afloat, partially avoided government demands for excessive revenues and regulatory compliance. Despite this healthy reaction by these “tax producers”, fiscal excesses continued well into the 1980’s and early 1990’s, crowding out private production and capital investment. See Sergio Ricossa, “A General Description of the Italian Tax System”, in Walter Block and Michael Walker (edited by), Taxation: An International Perspective, The Fraser Institute, Vancouver, Canada, 1984, pp. 331-345; Nicola Rossi, Un miracolo non fa il santo: La distruzione creatrice nella società italiana, 1861-2021, IBL Libri, Torino, 2024, pp. 174-181.
- 8
This lack of competitiveness is compounded by an intricate and ever-increasing web of regulations that has shaped the recent history and political culture of France and Italy. According to Hans-Hermann Hoppe, this indicates that both countries have leaned more toward the “conservative” as opposed to the pure “social-democratic” variant of socialism. Writing in 1989, Hoppe noted: “Both Italy and France are studded with literally thousands of price controls and regulations, making it highly doubtful that there is any sector in their economies that can be called “free” with some justification. As a consequence […] the standard of living in both countries is significantly lower than that of northern Europe […] In both countries, to be sure, one objective of conservatism seems to have been reached: the differences between the haves and the have-nots have been well-preserved—one will hardly find as extreme income and wealth differentials in West Germany or the United States as in Italy or France—but the price is a relative drop in social wealth.” Hans-Hermann Hoppe, A Theory of Socialism and Capitalism, Ludwig von Mises Institute, Auburn, Alabama, 2010 [1989], p. 112.
- 9
See Alex Mengden, “International Tax Competitiveness Index”, Tax Foundation-Centre for Global Tax Policy, October 20th, 2025, pp. 4 and 46.
- 10
See “Le prospettive per l’economia italiana nel 2025-2026”, ISTAT, 5 dicembre, 2025, pp. 1-13.
- 11
See Gillian Rosemary Evans, Augustine on Evil, Cambridge University Press, Cambridge, 1982, pp. 1-6; John Hick, Evil and the God of Love, Palgrave Macmillan, New York, 2010, pp. 37-89.
- 12
US Conservatives were originally aware of this distinction. Things changed with the Reagan presidency and the Tax Reform Act of 1986, which took simplicity and “fairness” to be the overriding goals of tax policy. See Murray N. Rothbard, “The Return of the Tax Credit”, in Making Economic Sense, Ludwig von Mises Institute, Auburn, Alabama, 2006 [1988], pp. 212-215.
- 13
See Sunil Dwahan, “Italy plans 300.000 euros flax tax for wealthy foreigners in 2026 budget”, Financial Express, October 21st, 2025.
- 14
See Giuseppe Forte, “Italian parliament gives final approval to government’s 2026 budget”, Reuters, December 30th, 2025.
- 15
Vladimir Ilyich Lenin, TheState and Revolution, Progress Publishers, Moscow, 1961 [1917], p. 92.
- 16
Another point in common between contemporary intellectuals and “scientific” socialists is the quasi-mystical reliance on statistical data, which was also promoted by Lenin: “Bring statistics to the masses, make it popular, so that the active population learn by themselves to understand and realise how much and what kind of work must be done”. Vladimir Ilyich Lenin, Die nächsten Aufgaben der Sowjetmacht, Berlin, 1918, p. 33. Quoted in Jesús Huerta de Soto, Socialism, Economic Calculation and Entrepreneurship, Edward Elgar, Cheltenham, UK, 2010 [1992], p. 92, fn. 23.
- 17
Even conservatives and supply-siders may at times give the impression that the primary goal of fiscal reform is to refill the coffers of the state instead of freeing the economy. Yet, given the distortions in prices, incentives, and resource allocation that governmental activity entails and promotes, the opposite mindset appears more reasonable. While neither tax receipts nor tax rates, by themselves, can serve as a complete or adequate measure of governmental depredation, other things equal, as Murray Rothbard observed, a “far sounder objective would be to minimize the revenue and the resources siphoned off to the public sector”. Murray N. Rothbard, “Introduction to the Fourth Edition”, America’s Great Depression, Ludwig von Mises Institute, Auburn, Alabama, 2000 [1983], pp. xx.
- 18
Italy should, in this regard, take inspiration from one its natural sister nations: Argentina. There, the government led by Javier Milei achieved and maintained a budget surplus by cutting real public spending by some 30% on net and deregulating many sectors of the economy, not through by increasing the level of taxation. Indeed, according to the Instituto Argentino de Análisis Fiscal, under Milei the effective national tax burden decreased from 22.5% to 21.4% of GDP—the lowest level in ten years. See Bernardo Ferrero-Philipp Bagus, “A 3D Look at Argentina: Deregulation, Dollarization, Deflation”, The Economists’ Voice, april 23rd, 2025, pp. 151-160; “Informe de recaudación nacional de diciembre 2025”, Instituto Argentino de Análisis Fiscal, 2 de enero, 2026, p. 5.
- 19
In 2019 state-backed credit amounted to €85.8 billion (4,7% of GDP). During the Covid crisis it was expanded to over €350 billion (above 16% of GDP). In the aftermath of the pandemic, the stock was passively reduced; nevertheless, as of late 2025, it still amounts to €270 billion (13.4% of GDP), well above the European average (10.4%). In Germany, for example, the stock of state-backed credits accounts for no more than 7-8% of GDP. See Alessio Capacci, “Le garanzie pubbliche ai prestiti alle imprese restano su valori elevati”, Osservatorio sui Conti Pubblici Italiani, 2 maggio, 2025, pp. 1-5; “Le garanzie pubbliche sui prestiti alle imprese valgono 270 miliardi (14%)”, UNIMPRESA-Unione Nazionale Di Imprese, 18 settembre, 2025. The fact that the Italian government does not address the problem of state-backed credit while at the same time imposing higher taxes on financial institutions, confirms Jesús Huerta de Soto’s claim that the relationship between public authorities and the banking sector is “schizophrenic”—something that both highlights and contributes to the inherent fragility of the modern financial system. See Jesús Huerta de Soto, “Los Efectos Económicos de la Pandemia: Un análisis Austriaco”, Procesos de Mercado: Revista Europea de Economía Política, vol. XVIII, n. 1, primavera 2021, p. 50, fn. 40.
- 20
Jean-Baptiste Say, A Treatise on Political Economy, Augustus M. Kelley, New York, 1971 [1803], p. 449.
