Premier Romano Prodi on Friday survived a knife-edge, do-or-die vote on his six-month-old government's unpopular budget.
The 2007 budget was approved in a confidence vote in the Senate by 162 votes to 157.
The centre-left premier had been expected to win the ballot even though he holds only one seat more than the opposition in the upper chamber.
The premier was given a helping hand from several of seven unelected life senators, who have supported Prodi's government in past confidence votes.
Prodi told reporters afterwards: "I'm pleased... This is a turning point as expected - one which takes us in the right direction".
The premier opted for the confidence vote not only to speed up approval of the budget, which must be passed before the end of the year, but also to prevent it being sunk by defectors from his own nine-party alliance, which ranges from Communists to centrist Catholics.
The budget now returns to the House for a final vote.
Earlier on Friday, Prodi renewed his defence of the 34.7-billion-euro budget package, which contains extensive spending cuts and tax hikes and has sent Prodi's approval ratings plummeting.
"I did it for the good of the country. All medicine is bitter and those who don't take it don't get better," the centre-left premier told reporters in Brussels where he was attending a European Union summit.
"Reforms are always difficult but we will proceed together and see that they are fully implemented," the former European Commission chief added.
Prodi insists the tough measures are needed to bring down Italy's rising deficit and public debt levels and has accused Berlusconi of mismanaging the country's finances during his time in power.
Italy's debt mountain, which is the third biggest in the world, now stands at some 107.6% of GDP while the public deficit, which has breached the EU's 3% limit for the past three years, is expected to rise to 5.7% by the end of 2006.
The previous, Berlusconi government promised the European Commission that the deficit would be slashed to 2.8% by the end of 2007 and the EC has ruled out an extension on that deadline.
The Bank of Italy said this week the target could be met providing the country saw GDP growth of 1.8% next year.
Berlusconi defended his government's record on Thursday, saying there was no need for such a hefty budget.
"This is a terrible budget because it imposes pointless sacrifices on Italians, when cutting public spending by 15 billion euros was all that needed to be done," the former premier said.
But Economy Minister Tommaso Padoa-Schioppa said in a pre-voting Senate debate that the manoeuvre was aimed at "consolidating the public accounts and preventing financial collapse".
Padoa-Schioppa, whom polls show to be the most unpopular member of the government, said that "we are preparing the ground for a constructive future for the country which will eventually be recognised".
He conceded that the budget's presentation had been handled badly, with non-stop contradictory changes and announcements generating a sense of chaos.
But he also maintained that the budget had been a victim of bad press.
"Facts must be separated from fiction," said the minister, a highly respected economist who was a founding member of the European Central Bank.
He also repeated the government's pledge to get tough with tax dodgers and curb the black economy, which independent estimates say equals almost 30% of GDP.
OPPOSITION SPEARHEADS PROTESTS.
Meanwhile, the opposition continued to slam the budget as a growth-stifling tax sting.
Former minister Roberto Calderoli, a member of the devolutionist Northern League, said that "Prodi's medicine is not only bitter - very bitter, but it will kill the patient".
Berlusconi's Forza Italia party said that "support for the government and its popularity have collapsed. Italians don't deserve this budget, which is nothing but a tax bite".
Hundreds of thousands of Italians took part in a Berlusconi-led anti-budget rally in Rome earlier this month.
Prodi has also been booed and heckled in public over the past week, even in his hometown of Bologna.
A poll of 1,000 voters taken by the IPR marketing group and published by left-leaning daily La Repubblica on Thursday showed that 42% now had confidence in Prodi compared to 58% in July, while the percentage of those who said they had no confidence was up from 37% to 52%.
Confidence in the government as a whole was down from 63% to 38% while the percentage who said they had none or little was up from 36% to 58%.
The budget includes dozens of tax-hiking measures, including a reform of the income tax system which will usher in higher taxes for those on more than 40,000 euros a year.
