UPDATE 1-Monti sets up election race as Italy Senate okays budget

Thu Dec 20, 2012 8:39am EST

* Monti warns against throwing away benefits of his reforms

* Criticises unrealistic election promises

* Expected to announce will seek 2nd term in next few days

* Senate approves 2013 budget, now passes to lower house

By Jennifer Clark

MELFI, Italy, Dec 20 (Reuters) - Prime Minister Mario Monti on Thursday warned Italians against throwing away the results achieved by his technocrat government as parliament took another step towards approving the 2013 budget which will pave the way to a February election.

"It would be irresponsible to waste the many sacrifices Italians have made," Monti said in a speech in the southern city of Melfi.

The results of those sacrifices could easily be "swept away" if voters allowed themselves to be tempted by election promises which were "far from reality", he said, in comments that seemed to be directed at centre-right leader Silvio Berlusconi.

Monti's predecessor, who resigned in November last year as Italian borrowing costs surged, has promised to immediately abolish a housing tax introduced by Monti and to slash taxes by one percentage point every year after that.

Monti's words may well be the opening salvos in an election campaign of his own. He is widely expected to announce this weekend that he will participate in some way in the vote, either by endorsing parties that want him to return as prime minister or by standing as a candidate himself.

President Giorgio Napolitano said on Wednesday that Feb. 24 seemed the most suitable date for the election.

Monti, who has pushed through reforms of the pension system, the labour market and parts of the service sector, said Italy was still "only at the beginning of the structural reforms" needed to make the country more competitive.

On Thursday parliament took an important step towards passing the 2013 budget, the last piece of outstanding legislation before elections can be called, when the Senate easily approved the bill in a vote of confidence.

The budget, which aims to lower Italy's fiscal gap to 1.8 percent of output in 2013 from a targeted 2.6 percent this year, now passes to the Chamber of Deputies, where it is due to be passed either on Friday or Saturday.

If things move quickly as some commentators expect, Monti could then tender his resignation this weekend and immediately hold a news conference to clarify his intentions in the election.