Italy's tax hikes on financial sector raise uncertainty, hit 2026 earnings, central bank warns

ROME, Nov 12 (Reuters) - Frequent or unexpected changes in the taxation of Italy's financial system increase uncertainty and affect the investment decisions of market participants, the Bank of Italy said on Thursday, commenting on the government budget for next year.

Italy plans to collect €5.9 billion ($6.5 billion) from the financial sector to help fund planned tax cuts and spending hikes in 2027.

"The higher tax rate affects sectors with solid earnings and financial positions. However, this does not diminish the importance of a stable and predictable regulatory framework," representatives from the central bank told parliament.

The government also wants to spread over 10 years €20 billion in tax breaks linked to 2023 home renovation incentives that are currently scheduled to be used by taxpayers, financial and non-financial firms in 2027 to lower their tax burden.

"Such a measure would help curb public debt growth in 2027 but could have a significant impact on intermediaries' 2026 earnings," the Bank of Italy said.

Italy's public debt is seen peaking by the Treasury at 138.5% of GDP next year from 138.1% in 2026, before falling to 137.9% in 2028.

"The measure could also affect liquidity of non-financial companies," the central bank added.

Il Foglio newspaper fueled a debate on whether the operation is equivalent to a sort of debt restructuring aimed at making Italy's payments more affordable.

Intesa Sanpaolo Chief Executive Carlo Messina seemed to suggest the same when on Thursday he told a parliamentary committee that the measure would amount to a "South American approach" to public debt management.

Messina also said the measure could prompt the European Central Bank to ask Italian banks to lower their exposure to all government debt.

($1 = 0.9027 euros)

(Reporting by Giuseppe FonteEditing by Keith Weir)