Italian Prime Minister Matteo Renzi has cut taxes for 10 million low earners to try to boost household spending after a two-year recession, making good on a promise he made after taking office two months ago.

Renzi’s Cabinet passed a decree on Friday to reduce taxes for those earning between €8,000 and €26,000 a year by about €80 per month, starting next month.

The €6.9 billion in tax cuts will be funded by a mix of spending reductions, one-off windfalls and a “review” of spending on Lockheed Martin’s F-35 fighter jet, Renzi told reporters.

“We kept our word. Today is the beginning of a general reorganisation of spending and of the relationship between the state and its citizens,” Renzi said before outlining the cuts with tweets that were published on the government’s Twitter account as he spoke.

Italy is still struggling to recover from a recession that drove youth unemployment to over 40 per cent. Real per capita income in Italy, the eurozone’s third-biggest economy, is at nearly the same level it was in 1997.

In February, Renzi seized power within the Democratic Party from rival Enrico Letta, whom he accused of acting too slowly to make reforms and lift growth.

The decree “for competitiveness and social justice”, which goes into effect immediately but must be confirmed by Parliament within 60 days, means almost €7 billion in tax cuts this year and €10 billion in the following years.

To plug the hole in lost revenue, Italy will reduce its spending on goods and services by €2.1 billion this year and cap salaries in the public administration for €600 million. It will also include €900 million in other savings.

One-off measures include a tax windfall from private banks that hold revalued shares of the central bank, which should bring in €1.8 billion.

Other areas he mentioned were reducing the number of municipal companies paid for by the state, fighting tax evasion and cutting €150 million of spending as part of the €12 billion that had been earmarked for 90 of the F-35 fighters.