The Italian Cabinet yesterday approved an austerity programme estimated by Prime Minister Silvio Berlusconi to be worth €45 billion, the Ansa news agency reported.

The measures, intended to extricate Italy from a debt crisis, reportedly includes a “solidarity tax” on high earners and deep cuts in local government.

The cutbacks fulfil some key demands from the European Central Bank, which bought up Italian and Spanish government bonds this week to help reduce borrowing rates that had threatened to make their debt burdens unmanageable.

The package has to go before Parliament for final approval. “Faced with an emergency, our country knows how to react,” junior finance minister Luigi Casero said in an interview with TG4 News.

“We will move as quickly as possible. We hope the approval will come at the beginning of September,” he said.

A stock rally cleared the air before the government meeting, with the benchmark FTSE Mib index in Milan ending the day up four per cent. Banks led the rally after the Italian market regulator imposed a temporary ban on short-selling for banking and insurance company stock.

The new austerity measures aim to help assuage jittery markets by returning Italy to a balanced budget in 2013 instead of 2014 as previously planned. They come on top of a €48-billion package agreed in July when Rome first came under overwhelming pressure from investors.

Prime Minister Silvio Berlusconi said before the meeting that the aim was to save “€20 billion in 2012 and €25 billion in 2013”.

Press reports said the tax on higher salaries could be five per cent for those on €90,000 a year, rising to 10 per cent on those over €150,000.

Mr Berlusconi has long resisted raising taxes on Italy’s highest earners, but his main coalition partners from the Northern League insisted that the government could not single out the middle class to increase tax revenue.