ROME (REUTERS) - Prime Minister Matteo Renzi, approaching a confidence vote in his new government on Monday, pledged to cut labour taxes, free up funds for investment in schools and pass wide institutional reforms to tackle Italy's economic malaise.

Facing parliament for the first time, the 39-year-old Renzi - Italy's youngest premier - sketched out an ambitious programme of change in an hour-long speech delivered in his trademark quickfire style.

His room for manoeuvre will be limited.

"If we lose this challenge, the fault will be mine alone," he told the Senate. The euro zone's third-largest economy is in urgent need of potentially painful reforms and is weighed down by a 2-trillion-euro public debt.

Backed by his own centre-left Democratic Party (PD), the small centre-right NCD party, centrists and other miscellaneous groups, Mr Renzi should win the vote in the 320-seat upper house.

But there will be close attention paid to the size of his majority following signs of dissent in his own party.

The outgoing mayor of Florence, who won the leadership of the PD in December, forced his party rival Enrico Letta to resign as prime minister earlier this month after he repeatedly criticised his government's reform record.

Mr Renzi offered a commitment to maintaining sound public finances, which he said was a duty Italy owed to its own children rather than to its European Union partners, but offered little detail about whether his government would seek an easing in tight EU budget limits.

He promised to make it cheaper for companies to take on staff by reducing payroll taxes with a double-digit cut in the so-called tax wedge - the difference between what it costs a company to employ a worker and the worker's take-home pay - in the first half of the year.

He did not explain how he would pay for the measure, but said the government would evaluate increasing tax on financial income to pay for a wider labour reform.

The public administration would completely pay off its arrears of unpaid bills and finance the measure through spending cuts and other measures, completing a campaign to free up billions of euros owed to private sector suppliers begun by his predecessor Letta.

A comprehensive package of reforms to the notoriously sluggish justice system would be completed by June and long-promised electoral and constitutional reforms would be in place and ready to go before parliament by the end of March.

Monday's Senate vote will be followed by a separate vote on Tuesday in the lower house, where the PD has a strong majority, and that will wrap up the parliamentary process required by every new government.