* Government wins confidence votes on budget law
* Final approval set for Thursday, law then goes to Senate
* Last major piece of legislation before 2013 election
* Productivity deal signed without largest union
By Giuseppe Fonte
ROME, Nov 21 Italy's government won three
parliamentary confidence votes on its budget plans on Wednesday,
paving the way for a sales tax hike to help mend public finances
and taking a step towards clearing one of its last big hurdles
before elections next year.
President Giorgio Napolitano, who will decide the date of
the election and has indicated a March date, has directed that
the law must be passed before the end of the government's term.
The budget, enshrined in a so-called Stability Law, is
central to Prime Minister Mario Monti's efforts to lower Italy's
public deficit to 1.8 percent of output next year from a
targeted 2.6 percent in 2012.
Italy's economy has been the most sluggish in the European
Union for more than a decade, fuelling investor concerns about
its ability to bring down its public debt of 126 percent of GDP.
The government called the confidence votes to speed approval
of the Stability Law, which is expected to be one of the final
pieces of major legislation approved under Monti before Italy
gears up for a national election.
Following Wednesday's three votes in the lower house of
parliament on different articles in the law, deputies give their
definitive approval on Thursday and the package will then go to
the Senate for a final reading.
As part of the wider budget package, the government also
signed a deal with employers and unions on Wednesday that will
unblock 2.1 billion euros ($2.69 billion) set aside to allow tax
breaks on productivity bonuses over the 2013-15 period.
The country's largest union, the leftwing CGIL, rejected the
accord but Monti welcomed the deal, which is intended to address
the chronic problem of Italy's lack of competitiveness, a major
factor in its weak economic track record.
"This is an important step forward for economic recovery,"
he told a news conference.
The agreement would guarantee national collective contracts
but would provide greater incentives for company-level wage
agreements in a bid to boost flexibility.
It would attach productivity clauses to certain types of
company contracts and would allow greater room for manoeuvre
over conditions linked to productivity including working hours.
Monti agreed at the end of October to overhaul the first
draft of the budget legislation by replacing a planned income
tax cut with a reduction in payroll taxes paid by employers.
The package still includes a one percentage point rise in
the highest value-added tax (VAT) rate, which will go into
effect next July, bringing it to 22 percent. The lower 10
percent rate will not be increased as previously planned.
Ahead of the spring election, political parties have been
pressing for some easing in the austerity medicine imposed by
Monti since he took office a year ago to head off a financial
crisis and restore order to public finances.
Tax hikes and spending cuts imposed to rein in the country's
massive debt have exacerbated a recession in the euro zone's
third-biggest economy, and increasingly been the focus of street
protests and political attacks from the opposition.
With unemployment at almost 11 percent, the highest in
records going back to 2004, Monti has been under growing
pressure to do more to stimulate growth.
Italy's economy shrank a smaller-than-expected 0.2 percent
in the third quarter of 2012 compared with the second, meaning
the current recession has dragged on as long as one in 2008-09
at the height of the global financial crisis.