The Italian government approved a 2008 budget in the early hours of Saturday morning identifying nearly 11 billion euros in new receipts and spending cuts, though a decision on the thorny question of welfare spending has been put off to October 12.
The budget, which had been the source of a growing crisis within the center-left government, will allow Italy to bring its 2008 public deficit down to 2.2% of gross domestic product from this year's expected 2.5%.
Addressing foreign journalists, Italian prime minister Romano Prodi said Italy is returning to a calm and normal situation as regards public finances.
"We will continue to do what we promised: reduce Italy's debt, reduce the deficit, stabilize public spending, ease tax pressure and resume investments in key sectors like infrastructure, universities and aid to cities without forgetting to support the weakest," he said.
The new budget reduces the tax burden on businesses and eases costs for tenants.
Besides financing tax cuts, the additional receipts will be needed to pay for pension reform and job security measures as well as infrastructure programs costing some 9 billion euros.
The government has also proposed that the number of parliamentarians be cut to a maximum of 450 in the lower house from the present 630 and to 200 in the upper house from 315.
The budget package must be adopted by parliament by the end of the year.
Prodi's coalition has only a slim majority in the upper house.