Italy`s government on Tuesday approved a 2014 budget that will have "less spending, less debt and less tax" to help sustain a gradual economic recovery it hopes will start later this year.
Prime Minister Enrico Letta said political tensions within his uneasy right-left coalition had "not made the task very easy", and the budget still has to go to parliament for final approval.
The draft includes tax breaks totalling 14.6 billion euros (USD19.8 billion) over three years, of which 5.0 billion euros are for workers and 5.6 billion euros for businesses, officials said.
In total the Italian exchequer foresees 27.3 billion euros of tax breaks over three years.
Letta said there would also be more incentives for businesses to hire young workers on long-term contracts amid record-high youth unemployment.
He also dismissed reports in the Italian press of cuts in the social welfare and health budgets.
He said spending would however be reduced for national and regional administrations and that extra funds would be drummed up for state coffers through the selling off of state properties.
The draft budget also includes a new "service tax" to replace the unpopular IMU housing tax which was scrapped in the summer. This will cover the costs of public services such as refuse collection.
The budget aims for a public deficit of 2.5 percent of gross domestic product (GDP) in 2014 -- below the European Union-mandated threshold of 3.0 percent which Italy is struggling to respect.
Finance Minister Fabrizio Saccomanni said the budget "reinforces the potential for economic growth and stimulates the recovery".
"We will not have China-style growth but I am sure this intervention will bring Italy out of recession," Saccomanni said.
Italy has been stuck in recession for two years and the economy is held back by a mountain of debt.
Economists are sceptical that the recovery will start this year, although there have been some encouraging signs like a pick-up in exports.