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Italy to spend 10 bln euros on furlough schemes, tax breaks for south - sources

* Italy to present draft 2021 budget this week

* Budget to extend temporary lay-off schemes

* To lift firing restrictions for firms not using furlough

ROME, Oct 15 (Reuters) - Italy will spend 10 billion euros in its 2021 budget to extend temporary lay-off schemes for companies and offer tax breaks to firms to support employment in the poor south of the country, government sources told Reuters.

The draft budget, with more than 30 billion euros ($35.15 billion) of expansionary measures to help foster an economic rebound from the recession caused by the coronavirus, will be presented by Giuseppe Conte’s government in the next few days.

However, in an attempt to return to a more pre-COVID situation, the government also plans to lift limits on firing from the start of next year for firms not using government-funded temporary lay-off schemes.

In March, when Italy’s coronavirus epidemic was at its peak, Conte banned firing and boosted financing for so-called furlough schemes allowing firms to send workers home on reduced pay until better times.

The ban on hiring was partially eased in August.

The furlough schemes, which were due to expire on Dec. 31, will be extended for another 18 weeks at a cost of 5 billion euros, the sources said.

With millions of Italian workers on furlough and facing the end of support, extending the scheme is seen as essential to avoid a crisis for households and consumer spending.

A further 5 billion euros will be spent on extending for the whole of next year a 30% reduction in social security contributions for companies operating in Italy’s south.

The budget, which will target a deficit next year of 7% of GDP, down from 10.8% this year, will also extend an existing fiscal “bonus” of 80-100 euros per month for low and middle-earners at a cost of some 2 billion euros.

Tax breaks for firms hiring workers under 35 years of age and for companies with women workers returning from maternity leave will get financing worth more than 1 billion euros next year, said the sources, who asked not to be named.

$1 = 0.8536 euros Reporting by Gavin Jones and Giuseppe Fonte; Editing by Catherine Evans