* Emergency decree follows wave of scandals
* Audit court to check, monitor local govt budgets
* Decree raises sanctions for financial mismanagement
By Giuseppe Fonte and Gavin Jones
ROME, Oct 4 (Reuters) - Italy's cabinet approved emergency legislation on Thursday to rein in the spending of regions and provinces and avoid any repetition of recent financial scandals involving local government.
In one such incident, which came to light last week, police seized documents related to expense claims at the regional government of Piedmont and on Wednesday the head and four employees of a tax collection agency were arrested for allegedly pocketing some 100 million euros ($130 million) of the money they had gathered.
These and other scandals "are part of an old Italy that we would prefer not to see any more", Prime Minister Mario Monti said, adding that he was worried by the "incalculable damage" such disclosures did to Italy's image abroad.
Italy's regions, which control major areas of spending including health, are under scrutiny as Monti's government tries to enforce spending cuts to ease one of the major debt crises afflicting the euro zone.
The cabinet decree, which must be approved by parliament within 60 days, rules that regional governments will have to get prior approval for their budget plans from the country's audit court, a panel of magistrates that oversees public spending.
The court will also carry out quarterly checks into the region's finances.
The government last month sharply hiked its budget deficit and debt forecasts for this year and next despite the painful austerity measures adopted, and regional government spending is considered among the most difficult areas to control.
Spending by the regions has increased by 75 percent in the last decade due to budgetary management which is often "opaque, inefficient and economically unsustainable", the prime minister's office said in a document after the cabinet meeting.
Monti's unelected cabinet of technocrats which took office almost a year ago has governed with far more sobriety than his scandal-plagued predecessor Silvio Berlusconi, but at the local level waste and corruption have continued to prosper.
"We are trying to put an end to the waste of public money and limit the growing and worrying public disaffection towards politicians," Monti said at a news conference.
"After the unspeakable episodes that have happened Italians are indignant that heavy sacrifices are asked of them while the world of politics seems exempt."
The president of the regional government of Lazio resigned last month over a case involving embezzlement of party funds and members of the Campania, Lombardy and Calabria governments are also under investigation for misuse of public money.
The government decree says that local government politicians found guilty of financial mismanagement will be barred from political office for 10 years and will face heavy fines.
To improve fiscal discipline, the legislation blocks discretionary spending by local government bodies whose budgets are off target and increases their scope to raise taxes.
In addition, the salaries and benefits of local politicians will be set at the level of those currently offered in the most "virtuous", or least generous, regions.
Economy Minister Vittorio Grilli said an estimate of the savings that the new rules would achieve would be included in the government's multi-year budget, or "Stability Law", to be presented on Oct. 9.
Earlier on Thursday the cabinet approved legislation to promote digital technology in the public administration, reduce red tape for start-ups and offer tax breaks for companies embarking on major infrastructure projects.
$1 = 0.7689 euros Writing by Gavin Jones; Editing by Michael Roddy