Italy needs to find €20 billion to finance budget promises for 2025, according to new government forecasts.

The government reiterated its commitment to gradually decreasing the yearly budget deficit in accordance with European Union standards this week, as it presented the Treasury's biannual Economic and Financial Document despite a somewhat uncertain economic forecast.

The Treasury has forecast a deficit-to-GDP ratio of 3.7% for next year, which could increase to 4.6% should Prime Minister Giorgia Meloni prolong a series of spending and tax-cutting measures that the government has been struggling to fund in this year's budget.

The difference between the two forecasts, amounting to 0.9 points of GDP, is equivalent to slightly over €20 billion based on the Treasury's projected GDP for the upcoming year.

An additional €23 billion would be required annually if the measures remained in place in 2026 and 2027, Reuters reports.

The package encompasses reductions in social contributions and income taxes for low- and middle-income earners, totalling approximately €15 billion.

Alternatively, the government could fund these measures by employing a mix of spending reductions and tax hikes, thus maintaining the deficit at a largely consistent level.

Italy has pledged to adopt a cautious strategy regarding state finances, aligning with the recent reform of the European Union's fiscal regulations. These regulations stipulate a gradual decline in both deficit and debt starting from 2025, to be achieved over a period of four to seven years.

According to economy minister Giancarlo Giorgetti, Italy would hold negotiations with the EU Commission to extend its fiscal adjustment timeline to seven years.

As per the latest projections, Italy's public debt, which is the second largest in the eurozone relative to output and subject to close scrutiny by rating agencies and markets, is expected to increase to 139.8% of GDP in 2026 from 137.3% in 2023. It is then anticipated to experience a slight decrease to 139.6% in the subsequent year

The prime minister attributed this pattern to the "devastating impact" of expensive home renovation incentives, which, despite recent government restrictions, are expected to persistently burden public finances.