ROME Italy will set new targets for the economy and public finances on Tuesday when the cabinet approves a multi-year plan for presentation to the European Commission, the prime minister's office said.
Premier Matteo Renzi said last week that the Financial and Economic Document (DEF) will cut this year's economic growth forecast to 0.8 or 0.9 percent, from the 1.1 percent projection made by the previous government of Enrico Letta.
The budget deficit target may be revised up slightly to around 2.6 percent of gross domestic product from 2.5 percent, government sources have told Reuters, but will remain well below the European Union's 3 percent ceiling.
The plan should also give some indication of how the government will manage to fund around 10 billion euros of income tax cuts which Renzi has promised will take effect from May, and which will lower government revenues by around 7 billion euros this year.
The cabinet will meet at 6 p.m. (1600 GMT) on Tuesday, followed by a news conference at around 8 p.m. (1800 GMT), Renzi said on Monday.
The new growth forecast remains above the projections of virtually all private sector economists. The International Monetary Fund and the European Commission both see Italy growing by just 0.6 percent.
The DEF will probably raise next year's deficit target to 1.8 percent of GDP from 1.6 percent, sources say.
Renzi met on Monday with Economy Minister Pier Carlo Padoan and Carlo Cottarelli, the commissioner charged with cutting public spending over the next three years.
Renzi's task will be helped by reduced debt-servicing costs thanks to the recent fall in yields on Italian government bonds. He has said he will raise taxation of financial instruments, but most of the funding for the tax cuts must be found through reductions in public expenditure.
The DEF is expected to estimate that public debt will rise further to a new all-time high above 133 percent of GDP this year, from 132.8 percent last year.
That figure, the second highest in the euro zone after Greece's, could rise significantly if Renzi keeps another promise to pay back this year some 68 billion euros of arrears owed by public bodies to private sector suppliers.
The DEF is also likely to raise the target for revenue to be garnered from privatizations to somewhere between 0.5 and 1 percent of GDP per year from the current 0.5 percent target, a government source said on Monday.
(Editing by Susan Fenton)