ROME (Reuters) - Italy's cabinet on Monday approved a 40 per cent windfall tax on banks for 2023, with proceedings to be used to help mortgage holders and cut taxes, the deputy prime minister said.

"One only has to look at the banks' first-half 2023 profits, also the result of the European Central Bank's rate hikes, to realise that we are not talking about a few millions, but we are talking one can assume of billions," Deputy Prime Minister and Infrastructure Minister Matteo Salvini told a news conference in Rome.

"If (it is true that) the cost of money burden for households and businesses has increased and doubled, it has not equally doubled what is given to current account holders" Salvini said, adding there was a large gap between the rates applied to loans and deposits.

Salvini said the 40pc levy on banks' extra profits that amount to several billion euros will feed items such as a reduction of the tax wedge, tax cuts and financial support to holders of mortgages on first homes.

Reuters was the first to report in April that the Treasury was working on a levy on its banks to fund relief measures for families struggling with an increase in the cost of living.

The economy minister denied such plans in June but flagged lenders needed to show sufficient flexibility on interest rates charged and paid on customers' loans and deposits.

The Italian government, including Prime Minister Giorgia Meloni, repeatedly criticised the ECB over repeated interest rate hikes.