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Italy's Renzi moves toward budget approval ahead of referendum

ROME (Reuters) - Italian Prime Minister Matteo Renzi won a confidence vote in the lower house of parliament on Friday that takes him a step towards passing a 2017 budget law that raises pension and health spending and heads off a huge sales-tax increase.

Italian Prime Minister Matteo Renzi talks during an event at an FCA plant in Cassino, southern Italy, November 24, 2016. REUTERS/Tony Gentile

The Chamber of Deputies backed the government by 348 to 144. Losing a confidence vote obliges the government to resign, but Renzi’s healthy majority in the lower house has allowed him to use them to speed up passing legislation numerous times.

The vote came just over a week before a Dec. 4 national referendum on Renzi’s flagship constitutional reform. The 41-year-old has said he will resign if he loses.

Opinion polls conducted until a blackout period began last week showed the “no” vote comfortably in the lead, prompting volatility in equity and government bond markets as investors fret about the political instability that could follow.

Economy Minister Pier Carlo Padoan said on Friday the outcome of the referendum will not affect the budget, which must be passed by the end of the year.

Italy has been sparring with the European Commission over the spending package because it offers only a minimal reduction to the 2017 deficit - to 2.3 percent of economic output, a notch below the 2.4 percent goal for this year.

Renzi has repeatedly attacked European austerity and refused to change the budget proposal, saying the state needs to spend to help spur growth in the euro zone’s worst performing economy.

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The package raises health spending, sets aside 7 billion euros ($7.42 billion) over three years for pensions, and heads off a 15-billion-euro increase in sales tax.

It also earmarks funds to rebuild after a series of earthquakes in central Italy, and to manage hundreds of thousands of migrants arriving by boat across the Mediterranean.

Renzi said earlier on Friday that if a technocrat took over as the head of government after the referendum, they would not stand up to the European Union or cut taxes as he has promised.

The Chamber is scheduled to vote to pass the budget bill on Monday. Afterwards it will be sent to the Senate. An identical version of it must pass in both houses for it to become law.

Reporting by Steve Scherer, editing by Isla Binnie