Italy’s new government has approved its first budget, centred on lowering all-time high energy bills and slashing taxes from 2023 for the self-employed and payroll workers.

Prime Minister Giorgia Meloni is confident the increase in spending will accelerate the economic recovery, which according to the Treasury will contract in Q4 and Q1 next year.

The budget was signed off in the early hours of Tuesday morning, and will now go to parliament which must approve it by the end of the year, Reuters reports.

The measures included in the budget amount to nearly €35 billion. Rome is planning to fund 60% of it by increasing the 2023 budget deficit to 4.5% of GDP from the 3.4% forecast in September.

In addition, the Treasury said other funding sources include a rise in a windfall tax on energy firms that have benefitted from the hike in oil and gas prices. 

With a tax rate moving up from 25% to 35% until July next year, determined on profits rather than revenues, the new tax adheres to a European Commission framework. 

Furthermore, the budget has allocated more than €21 billion to help households and businesses with electricity and gas bills in 2023, the Reuters report adds. Whereas €4.2 billion has been set aside to reduce the so-called ‘tax wedge’, the difference between the salary paid and the amount the employee takes home.

As inflation continues to soar, the economy is predicted to grow 0.6% in 2023 as per Treasury forecasts, from 3.7% this year. The budget also extends a single tax rate of 15% for self-employed people to annual income up to €85,000, compared to the ceiling of €65,000 currently.

Moreover, the budget conditionally lowers the retirement age in 2023, specifying people can draw their pension from 62 years of age as long as they’ve paid in a minimum of 41 years of contributions.

The rule in place for 2022 by former PM Mario Draghi meant Italians could draw a state pension at 64, provided they’ve worked for 38 years.