By Steve Scherer and Giuseppe Fonte
ROME (Reuters) - Italian consumer confidence hit its highest level in more than four years in May after Prime Minister Matteo Renzi's government approved income-tax cuts for low earners.
Consumer spending has long been the main weakness of the Italian economy as real per capita income in 2013 was at nearly the same level as in 1997. The better-than-expected confidence survey suggests consumption may be about to pick up, providing a much-needed boost for the euro zone's third-biggest economy which is struggling to emerge from recession.
Renzi's Democratic Party vowed to accelerate reforms, that will include further tax cuts for businesses and households, after winning a landslide victory in European elections on Sunday.
National statistics bureau ISTAT's headline consumer morale index rose to 106.3 in May, data showed on Tuesday, from a revised 105.5 in April and the highest reading since January 2010.
A Reuters survey of 18 analysts had pointed to a slight decline from April to 105.0.
"There's no doubt that the 80-euro (tax) bonus boosted consumer sentiment," said Fedele De Novellis, an analyst at economic research institute REF.
After more than two years of recession and with unemployment at its highest level since the 1970s, Renzi passed tax cuts that put an estimated extra 80 euros a month into the pockets of 10 million low-income workers to try to revive economic growth. Italy pulled out of its longest post-war recession in the final quarter of last year with a timid 0.1 increase in output fuelled by rising exports, but the economy unexpectedly dipped again in the first three months of this year.
A "significant" recovery in consumer sentiment is underway, said Intesa Sanpaolo analyst Paolo Mameli, and the improvement may lead to more spending "starting today" as many households see the tax-cut bonus in their paychecks.
The ISTAT survey of about 2,000 people was conducted during the first half of this month and is the first ISTAT has published since the government approved the tax reductions.
A sub-index on the economic climate rose to 118.1 from 115.3 and one measuring personal sentiment increased to 102.0 from 100.6. Another sub-index measuring current sentiment increased to 104.6 from 101.6, while confidence in the future fell to 108.9 from 109.4.
ISTAT cautioned that it changed survey collection methods in June 2013, which resulted in a marked increase in the index level and skews comparisons to levels reached before the revision.
(Editing by Jeremy Gaunt and Susan Fenton)