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EXPLAINED: What is Italy doing to cut the rising cost of living?

Amid soaring inflation and price rises, the Italian government has announced new measures to help families and businesses keep costs down. Here's what you need to know.

EXPLAINED: What is Italy doing to cut the rising cost of living?
An extended discount on petrol and diesel at the pump is among measures announced by Italy's government on August 4th, 2022. Photo by MIGUEL MEDINA / AFP

Italy approved a much-anticipated aid decree on Thursday, August 4th, bringing a new round of state funding intended to tackle the country’s most critical issues: from the rising cost of living and sky-high inflation to the energy and supply crisis. 

READ ALSO: Fuel tax cut and help with energy bills: Italy approves inflation aid package

The ‘aiuti bis’ aid package, worth around 17 billion euros ($17.4 billion), likely marks the last major act by outgoing prime minister Mario Draghi before an early general election next month.

The funding is seen as badly needed after inflation hit 8 percent in Italy in June – the most severe spike the country has experienced since 1976.

After weeks of speculation about exactly which measures may or may not be included in the decree, we now know it contains everything from an extension to the fuel duty cut to more help with energy bills for those on lower incomes.

Here’s what you need to know about the latest measures intended to keep the cost of living under control.

Extension to fuel duty cut 

The current discount on fuel duties is to be extended again to September 20th, though the value of the discount will drop from 30 to 25 cents. 

The discount was recently extended to August 21st but the government decided to further prolong the incentive in a bid to ease the blow that record fuel prices have dealt to consumers and businesses.

The cut was initially introduced as far back as March when the average prices at the pump for petrol and diesel both exceeded the two-euro mark.

Help with energy bills

Measures introduced in the first half of the year to help lower-income households and vulnerable people pay rising energy bills will be extended under the new decree.

It extends an existing government discount on gas and electricity bills for a further three months, until the end of 2022, as well as reducing system charges.

READ ALSO:

Italy’s tax on the ‘excess profits’ of energy companies has meanwhile been extended to June 2023 after the government reportedly received fewer payments than expected.

Tax cut for employees

Workers earning a gross income of under €35,000 are eligible for a two percent tax saving, amounting to a small monthly ‘pay rise’ until the end of this year.

“Already in the budget law we reduced social contributions by 0.8 percent; for the second half of the year this reduction goes up to 2 percent, as we’re now adding 1.2 percent”, said Economy Minister Daniele Franco at a press conference on Thursday.

As the tax relief lasts until the end of the calendar year for a six-month period, the July deduction will be retroactive.

New aid measures announced on Thursday are hoped to boost Italy’s consumer spending power as the cost of everyday goods rises. Photo by ANDREAS SOLARO / AFP

Those earning €35,000 can expect to save around a further €30 per month (1.2 percent of a monthly salary of €2,692 – most Italian salaries are paid out over 13 rather than 12 months to give employees a tredicesima Christmas bonus).

To find out how this may apply to you, it’s advisable to speak to an accountant or your local Italian tax agency (Agenzie delle entrate) office.

More funding for mental health treatment

The new decree will also enhance the existing ‘psychologist bonus’ (bonus psicologo) by allocating an additional 15 million euros to the measure. This will bring the total amount of funds available for the bonus to 25 million euros. 

The bonus was officially introduced at the end of July to help make mental health services more affordable, amid a pandemic-induced crisis in Italy.

All individuals with an Isee (a calculation of relative household income and wealth) lower than 50,000 euros will be eligible to receive a 600-euro voucher, which they’ll be able to use when seeing professionals listed on Italy’s official register of psychologists.

See more information about claiming the bonus in a separate article here.

Discount on public transport tickets

The government will allocate a total of 101 million euros to funding its ‘transport bonus’ (bonus trasporti); 22 million more than the original amount.

The bonus takes the form of a one-time 60-euro discount to be used on the purchase of monthly or yearly tickets for local transport services.

It will be available from September 2022 to all pensioners, students, and employees with an Isee of up to 35,000 euros.

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ENERGY

Switzerland mulls plan to nab Italy’s gas supply

The Swiss government is considering using a contractual clause to tap into Italy’s gas pipeline, a prospect that is already creating tension between the two countries.

Switzerland mulls plan to nab Italy’s gas supply

Neutral Switzerland is known for its role in mediating international conflicts, not creating them.

But according to a report in Tages-Anzeiger, this might change in the foreseeable future, as an impending gas shortage is threatening to drastically reduce the supply of this vital energy source to Switzerland.

As Switzerland doesn’t have its own gas storage facilities, it relies heavily on other nations, in particular Germany, for its supply.

However, Germany is seeking to maximise its own stocks, which means it could reduce or, if there is an extreme shortage, even stop exporting gas to Switzerland altogether.

Since Italy is also connected to this pipeline, Swiss authorities have already warned their Italian counterparts that they will use the gas from this pipeline for themselves.

While this may sound highly unethical, it is not illegal: the contract between the two countries states that, in the event of a crisis, Switzerland can keep the gas supplied by Germany, even if this act would stop the flow of gas towards Italy.

Not surprisingly, “the Italians have reacted strongly” to Switzerland’s stance, sparking unprecedented tensions between Bern and Rome, according to Tages-Anzeiger.

In the meantime, the Swiss are hoping this worst-case scenario can be avoided if everyone in the country starts to follow energy-saving measures.

Economy Minister Guy Parmelin has been urging businesses to switch from gas to oil, “and to do so immediately”.

“As of today, independently of market prices, we must build up reserves of fuel oil. If everyone waits until the autumn, we will have a logistical problem”, he added.

In the event of an actual shortage, “consumption restrictions may be ordered, for example restrictions on the heating of unoccupied buildings. The switching to biofuel could be imposed by ordinance”, Parmelin noted.

If the shortage persists, a quota would be implemented. Initially at least, private households and essential services, such as hospitals, will not be affected, but  “otherwise there will be no exceptions”.

READ MORE: ‘It could hit us hard’: Switzerland prepares for impending gas shortage

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