Italy’s ruling coalition was set to approve a tax-cutting budget very late yesterday or early today, risking a conflict with the European Commission which says Matteo Renzi’s government is not doing enough to rein in public debt.

The 39-year-old Italian Prime Minister, faced with an economy which has not grown for three years, has set out an expansionary framework for 2015 which increases new borrowing and targets only a marginal reduction in the deficit.

The Cabinet was meeting late at night to finalise and approve the budget, Renzi’s first as premier. The former mayor of Florence says it constitutes “the biggest tax reduction ever attempted” in Italy, although many details remain unclear.

Renzi says he will maintain an income tax cut for low earners adopted in April worth 10 billion euros per year, cut a regional company tax, IRAP, by 6.5 billion euros and scrap social contributions for new hires on open-ended contracts.

“The difference between the 2014 budget and the 2015 budget is 18 billion euros less taxes,” he tweeted yesterday.

The Commission wants Italy to reduce the deficit more in order to tackle a debt burden that has risen steadily to more than 130 per cent of national output, the highest in the euro zone after Greece, EU sources have told Reuters.

Renzi says the rising debt is due to persistent economic weakness which is only exacerbated by fiscal tightening, but one of the prime minister’s main economic advisers said Italy could adjust the budget if the Commission rejects it.

“The tax cuts and spending cuts are large enough to allow for a minor correction if the Commission asks for it, but that is not what we are expecting,” Filippo Taddei, the economics spokesman for Renzi’s Democratic Party, said yesterday.