ROME- Tax breaks promoted by Italy's Treasury to spur bank mergers and lure a potential buyer for state-backed Monte dei Paschi di Siena are triggering mounting opposition in the ruling coalition, lawmakers said.

The scheme, due to be approved by parliament by the end of the year as part of the 2021 budget, allows banks merging next year to lower their tax burden by turning so-called deferred tax assets (DTAs), worth billions of euros, into tax credits.

But ruling lawmakers from the anti-establishment 5-Star Movement and the small, left-wing Liberi e Uguali (LEU) party, are unhappy with the plan and have proposed amendments in parliament.

"The measure needs to be corrected," Stefano Fassina, a lawmaker from LEU in charge of shepherding the budget through parliament, told Reuters.

A majority of 5-Star's members want to keep Monte dei Paschi in public hands. The party also opposes using taxpayers' money to facilitate bank mergers at a time when the second wave of the coronavirus is putting a heavy burden on firms and families.

Mediobanca Securities analysts say the DTA measure in its current formulation is a "game changer" for domestic consolidation. They estimate it could provide up to 5 billion euros ($5.98 billion) in additional capital for potential merger deals in the Italian banking sector.

The scheme would entail a 3-billion euro benefit for Monte dei Paschi and its buyer, though a fee would be charged.

Economy Minister Roberto Gualtieri, from the other main government party, the centre-left PD, is pressing ahead with plans to re-privatise Monte dei Paschi next year. The bank has been supported by the government since 2017, following an 8-billion euro rescue.

5-Star lawmakers want to set a 500-million euro cap for the benefit or to allow it only in the case at least one of the two companies merging has fewer than 50 employees.

They are also pushing the Treasury to make eligible for the tax benefits companies raising fresh capital through new share issues, without necessarily going through a merger deal.

The LEU party wants to cap costs for state coffers and make the tax breaks conditional on a government green light that would only be given after consulting with parliament.

($1 = 0.8361 euros)

(Reporting by Giuseppe Fonte, editing by Gavin Jones and Alexandra Hudson) ((giuseppe.fonte@thomsonreuters.com; +390680307711;))