Italian Prime Minister Mario Monti has unexpectedly lowered taxes on the lower two income tax bands.

The tax rate for incomes below €15,000 will be lowered from 23% to 22% while the tax rate for those making between €15,001 and €28,000 will be cut from 27% to 26%.

The Italian government also said that it would raise the value-added tax by only 1% in order to meet budget goals agreed with the European Union, assuring that it will balance its budget in structural terms next year.

There was a planned two percentage point-hike to the value added tax for next year but the increase was limited to one percentage point.

"Today we can see that budget discipline pays and makes sense... we can allow ourselves some moderate relief," Monti told reporters after a cabinet meeting.

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