Renzi, who came to power in February after ousting his predecessor, told journalists the cabinet's three-year economic programme would lower income taxes through a €4.5 billion reduction in public spending.
The government promised to reduce taxes for some ten million people who earn less than €25,000 gross a year, bringing low earners a €80 saving a month from May.
The move will cost "around €6.7 billion" this year, which will be financed by reducing public spending by €4.5 billion and raising €2.2 billion through financial transactions.
"This plan is an act of social justice. There are those who have taken much, too much over the years, and it is time they gave some back," Renzi said.
Public sector employees will not be able to earn more than the Italian President, Giorgio Napolitano, whose salary is €230,000 a year – a sum still twice what the prime minister earns, he said.
The government lowered this year's growth forecast to 0.8 percent from the 1.0 percent growth estimate made by the previous government.
The International Monetary Fund and the European Commission both see the eurozone's third largest economy growing by just 0.6 percent in 2014.
The government upped its fiscal deficit forecast for 2014 to 2.6 percent of GDP, from 2.5 percent, but Renzi said the country – which has suffered a deep two-year recession – was back on track.
"We are not condemned to decline, Italy can get out" of the mire, he said.
Italy last year exited the European Union's excessive deficit procedure and has committed to remaining below the 3.0 percent level.
The government faces an enormous challenge in reviving the economy, which contracted by 1.9 percent in 2013. Debt also rose to 132.6 percent of GDP last year – the highest level in the EU after Greece.
The 39-year-old premier said the fine details of the new plan will be included in a decree to be adopted by the government on April 18th.
Financial economics expert from Rome's Luiss University, Nicola Barri, said "the direction Renzi is moving in is the right one."
"Italy needs a strong shake-up to get its economy going again, this is a good beginning, though other reforms will have to follow," he said.
The unemployment rate in Italy rose to a record 13.0 percent in February and Renzi has made tackling joblessness and reducing labour costs a cornerstone of his leadership.
"The reforms are not just a point of pride for this government, but a precondition for economic recovery. They are an absolute moral commitment onour part," he said.