According to Prime Minister Giorgia Meloni’s government, the public deficit is at 3% already this year, bringing the Italian budget back on track with the European Union's finance rules.
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Italy now expects its budget deficit in 2025 to be around 3% of GDP, down from an earlier forecast of approximately 3.3%.
That's according to the government's public finance planning document, submitted to the parliament on Thursday, which shows that tax income has been stronger than anticipated, therefore improving the budget balance.
If confirmed by the final numbers, this means that the EU's third-largest economy could exit the bloc's excessive deficit procedure one year ahead of schedule.
Previously, in April, the Italian government expected the deficit to come down to 3.3% of GDP this year, from 3.4% in 2024.
The EU launches its deficit procedure against countries that don't respect the bloc's fiscal rules and exceed the 3% deficit limit. The procedure limits the member states' room for manoeuvre on tax cuts and spending to keep deficits at a sustainable level, thereby safeguarding fiscal stability in the eurozone.
The EU has ongoing excessive deficit procedures against countries, including France, Austria, Belgium, Hungary and Poland, among others. The EU will assess the final figures for each country, including Italy, in spring 2026.
Italy's fiscal prospects have been improving for months now, a fact also recognised by ECB president Christine Lagarde, who said in an interview with Radio Classique in September: "Italy is making very serious budgetary efforts today and will probably exit from (the EU procedure), getting soon to a deficit of 3%."
In September, credit rating agency Fitch Ratings upgraded Italy's long-term debt to 'BBB+' from 'BBB', with a stable outlook, reflecting "increased confidence in Italy's fiscal trajectory".
The credit rating agency praised the government's strong commitment to meeting short- and medium-term fiscal targets under the new EU fiscal framework.
Risks remain, however, as the country is battling a high debt-to-GDP ratio. In 2026, this is forecast below a previous target of 137.8% of GDP, and it is expected to decline in 2027, coming in at 136.4% in 2028.
Meloni’s government expects the economy to expand by 0.5% in 2025 after it grew 0.7% in 2024. For 2026, the projection is 0.7%, although this figure is highly dependent on geopolitics and US trade tariffs.
In the new fiscal year, the government plans to cut taxes for those with middle incomes, one of Meloni's main electoral pledges.
The budget also pledges increased defence spending, which will rise by 0.15% of GDP in 2026, 0.3% in 2027, and 0.5% in 2028.
