Italy's cabinet has approved a €45 billion austerity budget in a bid to calm investors, with measures including more taxes on high earners. The budget is the second issued in the past few weeks.
Prime Minister Silvio Berlusconi said the measures were in line with demands from the European Central Bank (ECB), in return for the massive support given to Italy's bond markets this week.
He said the plan included a 5% tax for two years on people with an income of €90,000 - 150,000 a year, and 10% on those earning more than €150,000.
Finance Minister Giulio Tremonti said the measures would reduce the budget deficit to 1.4% of output by 2012, and to zero by 2013.
"We do not have any alternative," Mr Tremonti said when asked whether the measures would affect Italy's already weak growth.
The package now has to go before parliament for final approval.
The new austerity measures aim to help assuage jittery markets by returning Italy to a balanced budget in 2013 instead of 2014 as previously planned.
They come on top of a €48 billion package agreed in July, when Rome first came under overwhelming pressure from investors.
Economists welcomed the measures but cautioned on their effect on growth, AFP reports. Italy's economic growth rate has been at about 1% cent for a decade.
The ECB this week began an attempt to reassure investors that the eurozone's third-largest economy will not be dragged into a debt spiral through massive purchases of bonds - an unprecedented move to rescue an EU founding member.
That helped reduce the difference between Italian 10-year government bonds and benchmark German bonds - an indication of greater investor confidence.
