Italy prepares growth measures at "toughest hour"

ROME (Reuters) - Italian Prime Minister Mario Monti's unelected government, increasingly bogged down by the demands of its political backers, will seek to pass new measures this week to foster growth and press its reform agenda, the industry minister said on Sunday.

With some polls showing Monti's popularity dipping below 50 percent for the first time since he took power in November, the premier is seeking to revitalise his mandate to save the country from a Greek-style default with more reforms.

"This is the toughest hour," Industry Minister Corrado Passera said in an interview with state TV. The recession, tax hikes to lower the deficit, and the lack of a coordinated European response to the debt crisis are hitting households all at once, Passera said.

"There's no magic wand for growth. There's no big idea. We have to fix everything."

The government holds a Cabinet meeting on Monday where it may decide to set up a fund to collect extra revenue from the fight against tax evasion and from public spending cuts, and use it to reduce taxes, newspapers reported. During the meeting, the government is also expected to slash its growth forecast for this year.

Passera confirmed the idea of the fund during his TV interview, but was cagey about whether it would be used to lower taxes for families, for businesses, or even maybe to pay down Italy's debt, worth 1.9 trillion euros (1.57 trillion pounds).

LABOUR REFORM UNDER FIRE

Monti's government is supported in parliament by parties including former Premier Silvio Berlusconi's People of Liberty party (PDL) and the centre-left Democratic Party (PD).

But with local elections due on May 6-7, the parties have become more critical, reflecting discontent in their constituencies about new taxes and high unemployment.

Much of their criticism has been directed at Monti's proposed labour reform, which is currently before parliament.

The PD, backed by trade unions, and the PDL, backed by business lobbies, have staked out opposite positions on the reform, and their bickering is undermining the government's stability.

Monti has called a meeting with the leaders of all parties that back his government for Tuesday to discuss what can be done to boost growth, and to try to settle differences over the labour reform, a centrepiece of his efforts to reassure investors.

Italy's economy has been among the most sluggish in the euro zone for more than a decade, and the labour market changes are being closely watched as a test of Monti's ability to push through far-reaching changes to foster growth.

"Our country must make reforms that have been put off too many times, and they must be done for the common good, without looking at the election calendar," Passera said in an interview with il Messaggero newspaper published on Sunday.

Passera also played down a suggestion by a fellow minister that the government would step down if the labour reform did not pass, saying he was confident the labour reform would pass and the government would continue with its work.

The industry minister and former bank chief also said that lowering excise taxes on fuel was a government priority.

Italian truckers on Saturday announced they would stage five days of strikes in May, in part to protest against the fuel taxes included in Monti's December austerity package, worth an estimated 5.7 billion euros in revenue this year.

Accelerating public works projects that have been blocked for a variety of reasons, paying off state debts to companies, freeing up more bank credit for businesses, and the fund for future tax cuts are among the growth measures Passera mentioned.

The government owes as much as 100 billion euros in back payments to Italian companies for goods and services, and Passera said that, through an agreement with banks, he hopes to lower that amount by "several tens of billions of euros". ($1 = 0.7644 euros)

(Editing by Alessandra Rizzo)