UPDATE 1-Renzi tells Merkel Italy will respect EU budget rules
* Italy PM says Italy must boost growth to lower debt
* Plans to hike Italy's 2014 deficit goal
* Merkel says impressed by Italy's reform plans
BERLIN, March 17 (Reuters) - Italian Prime Minister Matteo Renzi on Monday assured German Chancellor Angela Merkel, a long-standing champion of European Union budget rigour, that he aimed to accelerate growth while respecting deficit spending limits.
Renzi last week announced a sweeping package of tax cuts, including 10 billion euros ($13.9 billion) in income-tax reductions, to help spur consumer demand, saying spending cuts and extra borrowing would fund the measures.
"Italy is not asking to exceed treaty limits," Renzi told reporters after his a meeting with Merkel in Berlin. On top of the income-tax cuts, Renzi said he would reduce a regional business tax and increase hiring flexibility for companies.
Merkel said she was "impressed" by the reforms outlined to her in detail by the 39-year-old Renzi, saying they would be a "structural change" for Italy.
But the 59-year-old chancellor did not indicate that Italy, with a debt of more than 132 percent of gross domestic product at the end of last year, would receive any budget concessions in exchange for its reform efforts.
"Equipped with many figures, the prime minister made clear to me that Italy on the one hand intends to generate growth, to make structural reforms, which I consider to be very important, as do international markets," she said.
"Then at the same time the prime minister says that the rules of the stability and growth pact are valid for Italy. I don't have the slightest reason to doubt this."
She did not give a direct answer when asked what she thought of Renzi's declared intention to raise Italy's current budget deficit target for this year from 2.5 percent to closer to the EU's 3 percent ceiling.
Renzi said Italian debt has risen as a percentage of output in recent years even though spending has been kept in check because growth has been stagnant. Domestic demand has "collapsed," he said.
"The measures that we presented aim to restore buying power to Italians and to accelerate growth because without growth the crisis will go on," Renzi said.
Renzi's meeting with Merkel follows one with French President Francois Hollande on Saturday. Renzi, who replaced party rival Enrico Letta as prime minister last month, has promised to turn around Italy's chronically sluggish economy.
The country suffered nine consecutive quarters of recession from mid-2011 through the third quarter of last year, and unemployment is at its highest level since the 1970s. Italy has been among the most sluggish economies in the euro zone for more than a decade.
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