Factbox - What's in Italy's austerity package

(Reuters) - Italy's cabinet approved an austerity package on Thursday to cut the budget deficit by 47 billion euros (41.5 billion pounds) with the aim of balancing the budget in 2014.

Most of the measures will take effect only in 2013 and 2014, after the government adopted deficit cuts worth 25 billion euros for 2011 and 2012.

Here are some of the main measures in the austerity plan, which must be approved by parliament within 60 days, according to draft versions that circulated in recent days and comments from government officials. No final version has yet been issued.

SPENDING CUTS

* Cuts to the budgets of central government ministries, worth a total of 5-6 billion euros over the 2013 to 2014 period.

* Funding to local governments to be reduced by 9.6 billion euros in 2013 to 2014.

* A one-year extension of a freeze on public sector salaries and hiring to 2014.

* The introduction of automatic increases to the retirement age on the basis of regular assessments of life expectancy will be brought forward to 2014 from 2015.

REVENUE MEASURES

* A reduction of tax breaks for firms and low income families, worth 16 billion euros between 2011 and 2014.

* Increased fees for hospital visits from 2012, worth around 1 bln euros per year.

* Income from banks' proprietary trading is to be taxed separately at 35 percent.

* A tax of 0.15 percent will be imposed on all financial transactions.

* An increase in road tax for large cars.

HOW URGENT IS DEFICIT REDUCTION FOR ITALY?

Italy, the euro zone's third largest economy, has been spared the worst of the market volatility since Greece's debt crisis exploded, thanks to a prudent fiscal policy, low private debt and a relatively solid banking system.

It shunned large-scale stimulus during the recession of 2008 and 2009 and its deficit rose far less than those of most of its euro zone neighbours.

However, it remains vulnerable due to its massive public debt of around 120 percent of GDP and its chronically weak economic growth -- the most sluggish in the euro zone over the last decade.

Ratings agencies Standard & Poors and Moody's both lowered Italy's outlook to negative over the last month, saying its inability to pass growth-enhancing reforms put in doubt its ability to cut its debt mountain as promised.

Following the bailouts of Greece, Ireland and Portugal, if contagion spreads to other euro zone countries Italy is widely seen as the next "domino" in line after Spain.

ARE THE MEASURES SURE TO BE APPROVED?

Even though Prime Minister Silvio Berlusconi now has only a small and fragile majority in parliament, it is most likely that the package will be approved before the August summer break.

Italy is acutely aware of the risk of contagion from the Greek crisis, especially after the recent surprise moves by S&P and Moody's and a rise in yields on Italian bonds. However, it is likely that the measures will be amended, and probably watered down during the passage through parliament.

A further test will come in the autumn, when parliament must approve the definitive version of the 2012 budget.

(reporting by Giuseppe Fonte; writing by Gavin Jones; editing by David Stamp)