Despite serious setbacks caused by government cuts, Italian cinema is laughing all the way to the bank.

Just as an annual 2010 report by prominent Italo think tank Censis described Italian society in the Silvio Berlusconi age as experiencing “an evident fatigue in living,” a clever crop of sophisticated comedies is scoring big paydays. The most popular is mildly politically incorrect Islamic terrorism-themed laffer “Che Bella Giornata” (What a Beautiful Day), which on Jan. 10 pulverized the country’s B.O. records with a $24 million five-day haul, ousting “Avatar” as Italy’s biggest all-time opener.

“Beautiful Day” stars popular TV comic Checco Zalone as a security guard at Milan’s Duomo who gets romantically entangled with an Arab girl — and she’s hatching a terrorist plot to blow up the famous Madonna on the cathedral’s spire.

Produced by Pietro Valsecchi’s Taodue Film for Medusa, and helmed by Gennaro Nunziante, this modestly budgeted comedy has struck gold thanks to “a type of humor that doesn’t clobber you; that is not abrasive and self-satisfied about its vulgarity,” wrote Corriere della Sera critic Paolo Mereghetti.

Significantly, “Beautiful Day” in one weekend scored slightly more than the four-frame take of “Christmas in South Africa,” the 27th installment in the unrepentantly lowbrow Aurelio De Laurentiis Christmas franchise, which underperformed.

“Beautiful Day” capitalized on the success of “Benvenuti al Sud,” the smartly reconfigured remake of Gallic megahit “Welcome to the Sticks,” produced by Cattleya, and also released by Medusa, now on course to beat Roberto Benigni’s “Life Is Beautiful” as Italy’s all-time top local grosser, having pulled in $38.5 million to date since its October 2010 release — and counting.

There a remake of “Sud” in the works, and like the Gallic original, it’s set in Northern Italy.

“I hope Checco Zalone’s movie will boost the confidence and morale of Italian producers and prompt them to keep making movies, despite these tough times, because we can really score,” Valsecchi says.

Italian movies are driving the buoyant local B.O., which in 2010 rose 17% to grosses of $947 million, though Hollywood still commands a more than a 60% share.

“The current numbers (for Italian movies) at the box office are especially significant because this is capital that is fully reinvested in our market, unlike American movies that come, cash in and run,” he adds.

In 2010, Italo admissions grew 11% to 109 million, with local titles accounting for a 30% share.

Paradoxically, Italo pics are making a killing just as the cash-strapped Italian government slashed the national film fund, known as FUS, by 40%, leaving it with $337 million, a fraction of the figure invested by France and Germany. And to add insult to injury, the country’s key tax incentives for film production have been approved only through June 2011, rather than extended for the next three years, which producers were counting on.

Plenty of upscale releases are on tap in the coming months, including romantic comedy “Manuale d’amore 3” (Ages of Love) starring Robert De Niro and Monica Bellucci; Fox’s gangster pic “Vallanzasca”; Nanni Moretti-helmed “We Have a Pope,” marking the auteur’s first bona-fide comedy; and Paolo Sorrentino’s “This Must Be the Place,” starring Sean Penn as an aging rock star on a quest to find his father’s Nazi persecutor.