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Italy cabinet approves emergency decree to trim 2013 deficit

Italy's Economy Minister Fabrizio Saccomanni speaks to reporters at the close of the G7 Finance Ministers and central bank governors summit at Hartwell House in Aylesbury, southern England May 11, 2013. REUTERS/Yui Mok/POOL

By Giuseppe Fonte

ROME (Reuters) - The Italian government approved emergency measures on Wednesday aimed at keeping this year's budget deficit inside the European Union's ceiling of 3 percent of national output.

Economy Minister Fabrizio Saccomanni told reporters the measures, worth 1.6 billion euros (1.3 billion pounds), would correct a deficit that was heading for a marginal overshoot to 3.1 percent.

The cabinet decree is immediately effective but must be passed by parliament within 60 days or the measures will expire.

The package comprises a 1.1 billion euro cut in spending by government ministries and local authorities and 500 million euros of extra revenues from the sale of public buildings.

The property will be sold to state holding company Cassa Depositi e Prestiti (CDP), which will in turn try to gradually sell them on to the market, Saccomanni said.

Enrico Letta's government is targeting the fiscal gap to fall to 2.9 percent from 3.0 percent in 2012 to allow Italy to stay off the EU's blacklist which imposes tougher corrective action on countries with excessive deficits.

Italy's public finances remain delicately balanced. Some analysts believe the deficit is heading for a larger overshoot, but the government has already passed legislation allowing for a last-minute increase in end-year payments of company tax if this proves to be the case.

In the next few weeks Saccomanni must also find another 2.4 billion euros to fund the scrapping of the end-year payment of the housing tax IMU, or a new hole will open up in this year's accounts.

Meanwhile Italy's massive public debt, the second largest in the euro zone, is heading for a new record high of 133 percent of output gross domestic product this year.

Letta, who last week beat off an attempt by centre-right leader Silvio Berlusconi to bring down his left-right coalition government, must now turn to the more challenging task of presenting a credible 2014 budget by an October 15 deadline.

"We will aim to cut spending and lower taxes," Saccomanni said, adding that the priority would go towards reducing payroll taxes paid by companies in order to increase their competitiveness and bolster workers' pay packets.

The budget will try to stimulate the recession-bound economy while at the same time reducing the fiscal gap to 2.5 percent of GDP.

(Reporting By Giuseppe Fonte; Writing by Gavin Jones; Editing by Robin Pomeroy)