Italian lawmakers approve budget plans

Italy's lower house of parliament approved on Thursday budget measures including a sales tax increase and cuts to the health sector that were aimed at pulling the country out of deep debt.

The measures were approved by 372 votes in favour and 73 against, with 16 abstentions. They will now go before the Senate for approval.

With them, the government wants to reduce its public deficit to 1.8 percent of gross domestic product (GDP) next year from 2.6 percent in 2012, in large part through cuts in government spending on the local level and to the health and education sectors.

Prime Minister Mario Monti, who has called for greater fairness in shouldering the crisis, was forced to drop a planned tax cut for households with the lowest incomes after opposition from lawmakers.

A one-percent rise in the highest Value Added Tax (VAT) rate to 22 percent was retained and is to take effect in July, while a planned rise from 10 to 11 percent for the lowest rate has been scratched.

There was some good news for struggling families and businesses meanwhile.

Parents with children under three or disabled children will enjoy tax cuts while those out of a job because of the recession but not yet eligible for a pension will receive benefits from a 554 million euro ($713 million) pot.

The budget also establishes a fund for scientific research and sets aside 250 million euros for areas devastated recently by storms and flooding.

The amount of money set aside for government tax incentives aimed at helping boost productivity in the recession-hit country has been increased for the period to 2015.

On Wednesday, business leaders and trade unions signed a deal under which workers handed greater powers to employers in exchange for incentives -- though the biggest CGIL union refused because it said workers' rights would suffer.

The budget law has sparked anger among citizens feeling the squeeze of previous austerity measures imposed by the government to stave off the crisis.

Hundreds of town mayors took to the streets of Milan on Wednesday to rally against the cuts and said they would resign en masse if the measures were not altered, while pupils have occupied schools across the country in protest.

Italy slid into a recession at the end of 2011 and the government has said it does not expect a return to growth before next year at the earliest.