UPDATE 1-Italy's Tria calls for "constructive dialogue" with EU over budget

Italian Economy Minister Giovanni Tria said on Tuesday he wanted to have constructive talks with EU partners over the 2019 budget after the European Commission expressed concerns over Italy's deficit plans.

Addressing a parliamentary commission, Tria said the strategy adopted by previous governments to contain the national debt had not been efficient, adding that Italy needed to do more to boost growth and employment.

"There will now be a constructive discussion with Europe to show the well-founded reasons for this government's growth strategy," Tria said.

The European Commission warned last week that Italy's plans to triple previous deficit goals represented "a significant deviation from the fiscal path recommended by the Council".

The leaders of the two ruling parties, Luigi Di Maio and Matteo Salvini, have attacked the European Commission and said they would not backtrack on their spending plans for next year.

The budget plan and the clash with the EU have weighed heavily on financial markets, which are concerned that Italy's decision to increase borrowing will prove unsustainable given its huge debt mountain, which at 131 per cent of output is the largest in Europe after Greece.

Tria said Italy's structural deficit, which excludes one-offs and business cycle effects, would fall once growth and employment returned to pre-crisis levels. The structural deficit is set to rise by 0.8 per cent of GDP next year.

The government says its plans to cut taxes and hike welfare spending will boost growth and it has targeted output of 1.5 per cent next year, which is strong by Italy's chronically sluggish standards, 1.6 per cent in 2020 and 1.4 per cent in 2021.

"These targets are prudent," said Tria, brushing off widespread criticism from independent analysts who have said they were overly optimistic.

"(We will) significantly reduce, within the first two years of this legislature, the growth gap with the eurozone and bring about the first significant decrease in the debt ratio over the next three years," Tria said.