Italy to cut spending, sees risks of protests: report

New Italian Economy Minister Fabrizio Saccomanni attends at the Lower house of the parliament in Rome, April 29, 2013.

MILAN (Reuters) - Italy will resume public spending cuts to find resources for tax cuts to kick start growth, Economy Minister Fabrizio Saccomanni told daily Corriere della Sera on Saturday.

He warned, however, that cuts could spark social unrest in the euro zone's third largest economy, where lobbies have so far resisted previous government attempts to reduce state spending.

"We aim to support economic growth through a reduction of taxes on labor and companies," said Saccomanni, former deputy governor at the Bank of Italy.

"We can't do it by raising public debt, so we have to cut public spending," he said in an interview with the Italian daily.

Italy issues some 400 billion euros ($520 billion) of bonds each year to fund its 2-trillion-euro debt pile, Saccomanni said, reiterating that Rome could not put at risk its credibility on the markets by spurring growth with new debt.

Rome has committed to maintaining a budget deficit of 2.9 percent of gross domestic product in 2013, just under the European Union's 3 percent ceiling, and has just emerged from the EU so-called excessive deficit procedure.

Saccomanni, under pressure from the centre-right party in the coalition government to relax austerity in the country, said the government will launch a new round of spending reviews.

The process, aimed at finding savings from the state's huge balance sheet, would take time and could be painful.

"No one should expect we will find hidden expenses we can cut without raising protests," the minister said, adding he did not have a "magic wand".

Few positive signs in the economy, however, could help the government in its difficult task.

"We are confident we will see a recovery towards the end of the year," Saccomanni said, adding he expects the cost of servicing Italy's public debt could be lower than estimates, freeing resources for growth.

The right-left government headed by Prime Minister Enrico Letta is struggling to balance Italy's commitments to the EU with coalition promises to cut taxes.

At the insistence of Silvio Berlusconi's centre-right, a crucial part of the ruling coalition, the government has suspended a housing tax on primary residences and has also temporarily blocked an increase in sales tax due to take effect next Monday.

($1 = 0.7693 euros)

(Reporting by Francesca Landini; Editing by David Cowell)