MILAN/ROME (Reuters) -- Italy's 2007 budget will reduce tax for 90 percent of Italians as well as bringing the country's accounts under control for the first time in five years, Prime Minister Romano Prodi said on Sunday.

While opposition politicians vowed to block what they said was a move to penalized the middle classes and high earners, Prodi said the budget his centre-left cabinet agreed on Friday would redistribute wealth and make Italy fairer.

The budget, which parliament must approve by the end of the year, would cut Italy's growing deficit by 14.8 billion euros ($18.74 billion) and reduce it to 2.8 percent of GDP, below the European Union's 3 percent cap for the first time in five years.

On top of the deficit cut, an additional 18.6 billion euros is earmarked to cover measures to boost growth, including an initial 6-billion-euro cut to labor taxes. Overall a total of 33.4 billion euros needs to be found through spending cuts and extra revenues contained in the draft budget.

Something which may concern economists and rating agencies is that to raise the 33.4 billion euros, the budget relies heavily on higher revenues rather than structural spending cuts.

Prodi said public spending would be lowered by 10 billion, but no breakdown of figures was immediately available.

"Experience shows us that overshoots to current spending are where the slippage normally occurs in Italy's budget," said Deutsche Bank economist Susana Garcia.

The government backed down from initial plans to impose a 43 percent tax rate on earnings of 70,000 euros or more, instead opting for a 75,000-euro threshold.

Currently that highest tax rate is imposed only on earnings upwards of 100,000 euros.

Maurizio Gasparri, a former communications minister in Silvio Berlusconi's centre-right administration which narrowly lost to Prodi in an April election, said the budget was "an unprecedented social massacre".

The tax changes and a plan to raise 9.5 billion euros from the pension system would not just hurt the rich. "It doesn't just hit the highest incomes, but millions and millions of Italians," he said.

The belt-tightening measures, full details of which have yet to made available, involve central and local government, the pension system, health spending and higher taxes.