Czech Dep PM sees budget "disaster" if no reforms

...government reins in fast spending growth, Deputy Prime Minister Petr Necas told a newspaper on Tuesday.

Necas, who also serves as Minister of Social Affairs, said in an interview with the daily Pravo the right-of-centre government needed to push through austerity measures to prevent a fiscal "disaster".

The coalition government of Prime Minister Mirek Topolanek, which took power earlier this year, is due on Wednesday to discuss as yet unspecified proposals to reform the European Union member's public finances in a bid to curb spending.

Necas said next year's deficit could shoot up as high as 180 billion crowns if pension indexation is also taken into account.

The numbers quoted by Necas amount to 4.4-5.2 percent of the country's economic output as measured by gross domestic product (GDP) and mark a sharp widening from this year's budget deficit target of 91.3 billion crowns.

Separately, Topolanek was quoted by the CTK news agency as saying in a radio interview that he wanted to keep the deficit under 100 billion crowns next year.

Necas told Pravo social spending grew by 18.5 billion crowns a year on average betweeen 1999-2006 but leapt by 75 billion crowns this year from last year due to social spending changes pushed through parliament before a June election.

"This marks disaster for the public finances. Therefore, there must be a correction," Necas was quoted as saying.

The central state budget is the biggest part of the overall public finances, which also include municipal budgets, healthcare insurance companies and various off-budget funds.

Private sector economists and central bank policymakers have said a wide public finance deficit -- seen at 4 percent of GDP this year -- was the key impediment to both sustainable growth and timely adoption of the euro currency.

The three-party government, which won a parliamentary vote of confidence in January, has agreed that it will slash the fiscal deficit to 3.0 percent in 2008, bringing it into line with the ceiling imposed by euro adoption rules.

The government aims to cut the deficit by stemming the growth of social expenditure, and reforms to the health and pension systems. It also aims to cut taxes hoping that such a move will help encourage people to pay their taxes.

But it will face a daunting task in introducing any reforms as many of the plans will face stiff opposition in parliament, where the government controls just 100 out of 200 seats.