(Updates with Salvini against sugar tax)
By Angelo Amante and Gavin Jones
ROME, Nov 16 (Reuters) - Italy's ruling parties squabbled on Friday over a proposed tax on fizzy drinks but agreed to curb the scope of a contested tax amnesty, as the government puts together its big-spending 2019 budget.
A draft Italian budget has been rejected by the European Commission because it aims to raise the deficit instead of reduce it. The European Union executive has told Rome to present a new fiscal plan, but the government is carrying on regardless.
Carla Ruocco, a lawmaker from the 5-Star Movement, announced late on Thursday that the so-called "sugar tax" would be presented as an amendment to the budget, which must be approved by parliament by the end of the year.
Ruocco, the president of the lower house finance committee, did not give details on the tax "aimed at drinks with high sugar content", but said the revenue would be used to cut taxes for the self-employed and increase funding for universities.
However, Matteo Salvini, leader of the right-wing League party that governs with 5-Star, said on Friday he did not agree with the tax because it would hamper the government's attempts to boost domestic demand.
"Now is not the moment to raise taxes on consumption," he told reporters in Rome.
Separately, top government officials, including Salvini, who is interior minister, agreed at a meeting with Prime Minister Giuseppe Conte to reduce the scope of a widely criticised amnesty on tax evasion.
The amnesty, which allows people to settle tax disputes with the authorities by paying a limited sum, is popular among voters of the League, which has built support in the north of Italy among small businesses and the self-employed, where tax evasion is rife.
However, the measure, included in a so-called "fiscal decree" connected to the budget, created unease in 5-Star, which bases much of its appeal on a fight against illegality and corruption.
"There is full agreement on the fiscal decree," the League said in a statement announcing the changes after a meeting late on Thursday.
Under the agreement, the amnesty will now only be available to people who filed correct tax returns but were unable to pay the full taxes due.
A first draft had allowed people to declare and pay a reduced tax rate on income of up to 100,000 euros per year that they had previously hidden from the authorities.
Among other changes, the coalition also agreed to introduce a 1.5 percent tax on money transfers and reduce taxation on electronic cigarettes. (writing by Gavin Jones, editing by Larry King)