The "solidarity tax" had proved highly controversial within Prime Minister Silvio Berlusconi's centre-right coalition. The government said it would instead step up measures to fight tax evasion in order to raise revenues.
The decision was the result of a meeting between Berlusconi and Umberto Bossi, the leader of the Northern League party and a key coalition partner whose support the 74-year-old prime minister needs to stay in power.
The government emphasised in a statement that the changes to the austerity plan would not alter the overall savings of 45.5 billion euros ($66 billion).
Berlusconi -- a billionaire media tycoon -- had said he was against taxing the rich, which would have gone against a campaign promise not to raise taxes.
The temporary tax would have been five percent on revenues of more than 90,000 euros a year and 10 percent on revenues of more than 150,000 euros.
In response to the demands of the Northern League, the government also agreed to moderate some of its cuts on local government but said it would still do away entirely with provincial administrations -- a form of local authority.
It also said it planned to cut the number of parliamentarians by half.
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