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Milan - Italy's government adopted a sweeping four-year €47bn austerity programme on Thursday in a bid to reassure investors worried about contagion from the debt crisis in Greece.
Prime Minister Silvio Berlusconi urged the opposition to be "responsible" and approve the plan when it goes to parliament, dismissing reports of tensions in his government by saying there was "absolute agreement" over the measures.
"A balanced budget must be a common objective," Berlusconi said, as the government said it planned to reduce Italy's public deficit to just 0.2% of gross domestic product (GDP) by 2014 from 4.6 percent last year.
A government source said most of the savings - €40bn - will be in 2013 and 2014, with only €1.5bn this year and €5.5bn next year.
Downgrade
Berlusconi's mandate runs out in 2013 and opposition leader Pier Luigi Bersani of the Democratic Party said the delayed cuts were "a time bomb".
"We don't want to put our hands in the pockets of Italians," Berlusconi said, adding: "In order to be solid, a country cannot live outside its means."
The measures include an extension of a freeze on public sector salaries and hiring implemented last year, cuts in budgets for politicians and a speedier implementation of a reform aimed at reducing rocketing pension costs.
The government also gave the go-ahead for a reform of the tax system that would reduce income taxes and crack down on tax exemptions and evasion.
There were reforms too aimed at boosting the local economy including an end to restrictions on opening times and Sunday openings in some cities.
A measure proving particularly controversial in financial circles is the proposed impositiong of a 0.15% tax on financial transactions.
Italy has come in for particular scrutiny on the markets in recent weeks because of its high debt and low growth figures, as well as recent warnings from two ratings agencies of a possible downgrade in its credit rating.
"The situation in public finances and the low growth forecasts in our country are factors of weakness that make us vulnerable to contagion from the Greek crisis," said Giuseppe Vegas, head of Italy's financial regulator Consob.
The austerity plan "is aimed at avoiding this risk," he added.
A previous €25bn austerity plan adopted last year sparked a wave of social protests and the government is now in a far weaker position following defeats in local elections and a round of referendums in the past month.
For the government to see out its mandate "there is no choice but to drink every last drop from the chalice of austerity, however painful," Stefano Folli, a columnist with Italian business daily Il Sole 24 Ore, said earlier this week.
There has been sharp criticism of Economy Minister Giulio Tremonti's budget discipline ahead of the cabinet meeting, particularly from the populist Northern League party whose votes Berlusconi needs to stay in power.
Debt mountain
A planned increase in the minimum pension age for women in the private sector to 65 will only be introduced from 2020 after Northern League pressure.
The government is also expected to launch an overhaul of the tax system that would reduce income tax and crack down on tax exemptions and evasion.
Marco Valli, an economist with Italy's largest bank UniCredit, said investors were likely to "weigh the risks on implementation of the plan".
Italy has one of the highest public debt mountains in the world - equivalent to around 120% of GDP - but it has managed to retain market confidence by keeping its deficit lower than in some other EU economies.
Moody's ratings agency earlier this month however said it could downgrade Italy's rating, a month after a similar warning by Standard and Poor's.
Italian bond yields rose sharply in the wake of the rating agency reports but these fell back on Wednesday and Thursday after the Greek votes.
Italy's biggest trade union, the CGIL, has said it is ready to mobilise its members against the austerity plan saying the measures were "intolerable".
CGIL leader Susanna Camusso accused the government of "irresponsibility".
