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Italy’s prime minister Mario Monti is to give low-earners a cut in income tax.

It is a rare boost for struggling households in the eurozone’s third largest economy that has been in recession for a year.

The unexpected tax cut was balanced with a rise in VAT and a series of spending cuts in a combined package worth 11.6 billion euros in all.

Monti said: “We wanted to give a clear signal that when there are good signs of stabilisation in the national budget you can afford some moderate relief on income tax.”

Monti added that the tax break shows that his severe austerity measures were beginning to bear fruit.

Parliamentary elections are due in Italy next year.

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