ROME, Mar 10 (Reuters): An ambitious Italian plan for tax cuts to be announced this week will respect European Union deficit limits, Prime Minister Matteo Renzi said on Sunday.
Before replacing Enrico Letta as the head of government last month, Renzi had said an EU rule that member states should not run deficits of over 3 per cent of gross domestic product ceiling should be renegotiated.
However, he told a Sunday television talk show that the limit was "a conceptually antiquated idea, but we will respect it as long as it is not changed".
Hoping to spur growth in the euro zone's third largest economy as it struggles to keep out of recession amid record unemployment, Renzi has vowed to cut 10 billion euros ($13.86 billion) from the tax wedge, the difference between what an employer pays and what a worker takes home.
He dismissed accusations of a split in the government on whether the cut should apply to income tax or regional business tax, and said the plan would be announced on Wednesday, although without giving details of what it would contain.
"The true way of reducing costs for business is not just by cutting taxes, which we will try to do, but by simplifying the rules of the game," Renzi said.
He said the reform would not be targeted to benefit any specific interest groups, after Italy's largest union, the CGIL, warned it was ready to mobilise if tax cuts were not focused on workers.
The inexperienced 39-year old mayor of Florence and leader of the centre-left Democratic Party is under pressure to balance attempts to stimulate the economy with the need to control spending in the country with the biggest debt in the euro zone after Greece.
Last week the European Commission put Italy on its 'watch list' due to its high debt and weak competitiveness, meaning it will closely monitor reforms and could impose fines if they are not implemented.
The new prime minister's ability to realise his program depends on the same fickle majority in parliament that hampered his predecessor Letta, and he also faces enemies within his own party.
Renzi admitted disagreement in parliament had stalled an electoral reform he had planned to institute by February, the first of a series of major overhauls he had vowed to pass at the rate of one a month.
