ROME, May 24 (Reuters) - Italy's austerity budget to be approved on Tuesday will cut public sector hiring and pay, temporarily block those set to retire and reduce funding to local government, according to a draft obtained by Reuters.
The budget draft says only 20 percent of those who leave the public sector in 2011 to 2013 will be replaced, and it cuts transfers to municipal and regional authorities by 2 billion euros in 2011 and 3.8 billion in 2012.
Those who would have earned the right to retire in mid-2011 and at the end of 2011, according to the so-called retirement "windows", must remain at work for a further six months.
The budget, which aims to cut the deficit by around 13 billion euros in 2011, also makes cuts in the politically sensitive area of health spending, trimmed by 0.4 billion euros next year and 1.1 billion in 2012.
Spending by government ministries, including pay, is reduced by 8-10 percent per year in 2011 to 2013.
Other policies in the draft are a 10 percent cut from 2011 in the pay of government ministers and a 10 percent cut in the pay of public sector employees earning more than 75,000 euros.
The austerity package is still being hotly debated within the government and all the measures could be subject to change before final approval. The pay cuts for high earners is being resisted particularly fiercely by some ministers.
The government aims to cut the budget deficit from 5.3 percent of gross domestic product in 2009 to 2.7 percent in 2011.
The budget launches a crackdown on false claimants for invalidity benefits, announcing 100,000 checks per year in 2010-2012.
Among the victims of Italy's austerity plans is publicly funded think-tank ISAE, which conducts closely-watched surveys on Italian consumer and business confidence.
In future the functions carried out by ISAE will pass directly to the economy ministry, the draft says.