The cutbacks fulfil some key demands from the European Central Bank, which bought up Italian and Spanish government bonds this week to help reduce borrowing rates that had threatened to make their debt burdens unmanageable.
The draft measures reportedly include a "solidarity tax" on high earners, cuts to local government budgets and a reduction in government costs, and are expected to be adopted at an emergency cabinet meeting under way on Friday.
The package will then go before parliament for final approval.
"Faced with an emergency, our country knows how to react," junior finance minister Luigi Casero said in an interview with TG4 news.
"We will move as quickly as possible. We hope the approval will come at the beginning of September," he said.
A stock rally cleared the air before the government meeting, with the benchmark FTSE Mib index in Milan ending the day up 4.0 percent.
Banks led the rally after the Italian market regulator imposed a temporary ban on short-selling for banking and insurance company stock.
The new austerity measures aim to help assuage jittery markets by returning
Italy to a balanced budget in 2013 instead of 2014 as previously planned.
They come on top of a 48-billion-euro package agreed in July when Rome first came under overwhelming pressure from investors.
Prime Minister Silvio Berlusconi said ahead of the meeting that the aim was to save "20 billion euros in 2012 and 25 billion euros in 2013."
Press reports said the tax on higher salaries could be 5.0 percent for those on 90,000 euros a year, rising to 10 percent on those over 150,000 euros.
Berlusconi has long resisted raising taxes on Italy's highest earners, but his main coalition partners from the Northern League insisted that the government could not single out the middle class to increase tax revenue.
The prime minister also promised that the government would look at its own costs at a time when the public is furious over the perks enjoyed by the ruling elite, with savings estimated at 8.5 billion euros overall over two years.
Finance Minister Giulio Tremonti meanwhile pointed to the possible cutbacks on the levels of local and provincial administration to save money. The government would consider merging small municipalities and provinces, he said.
The head of the Union of Italian Provinces, Giuseppe Castiglione, hit back saying the government's plans were "depressive" for growth.
Officials have also said the government could raise the minimum levy on investment accounts with stocks and corporate bonds.
The new austerity programme "goes in the right direction," said Fabio Fois, an analyst with British investment bank Barclays Capital.
But he warned that the measures "risk having a negative effect on consumption by slowing down growth next year."
He said that what was needed were "structural reforms to increase the growth potential and offer guarantees on debt reimbursement in the long term."
Italy's economic growth rate has been at around one percent for a decade.
The ECB this week began an attempt to reassure investors that the
eurozone's third-largest economy will not be dragged into a debt spiral through massive purchases of bonds -- an unprecedented move to rescue an EU founding member.
That helped reduce the difference between Italian 10-year government bonds and benchmark German bonds -- an indication of greater investor confidence.
On Thursday, Tremonti said Italy had been forced to speed up austerity cuts "because of the intensification of the crisis and indications from Europe."
This drew sharp criticism from Northern League leader, Umberto Bossi, who said economic policy recommendations sent in a letter from the ECB to the government could be part of "an attempt to bring down the government."
Copyright AFP (Agence France-Presse), 2011