ROME The Italian government of Matteo Renzi will propose a 10 billion euro cut to income tax, daily newspaper La Repubblica reported on Saturday, without giving a source for the information.
A spokeswoman for the prime minister would not confirm the report, but said that details of a reform plan would be released following a cabinet meeting on Wednesday.
Renzi has pledged to introduce a range of reforms to kickstart an economy that grew a feeble 0.1 percent in the fourth quarter of last year and has record 12.9 percent unemployment.
But the 39-year-old must tread carefully to pursue growth without breaking European Union spending rules.
The European Commission put Italy on its watch list last week due to its high public debt and weak competitiveness, meaning it will monitor reforms and could impose fines if they are not implemented.
Renzi had previously promised a 10 billion euro cut to the tax wedge, the difference between what an employer pays and what a worker takes home, but had not clearly stated whether the reduction would come from income tax, social contributions or a regional tax on productive activities.
On Friday a spokeswoman for European Commissioner for Regional Policy Johannes Hahn warned that regional development funds could not be used to pay for a tax wedge reduction.
La Repubblica reported the income tax cut would be funded by 7-8 billion euros in spending cuts and the repatriation of funds from Switzerland.
Italy, which suffers from rampant tax evasion, has been in talks with its neighbor over disclosure of Italian savers' holdings in Swiss banks.
Renzi, who became prime minister after ousting his predecessor Enrico Letta in a party coup last month, has struggled to make headway on the first of his promised reforms, to change the electoral law to end the fragile majorities that have hindered lawmaking in the past.
The bill, which has been held up by debate on amendments, may only apply to the lower house of parliament, after the party of Silvio Berlusconi said it would back an amendment that would exempt the Senate from the changes.
Renzi said the Senate would be abolished within a year anyway.
(Reporting by Naomi O'Leary; Editing by Rosalind Russell)