Czech cbanker: Fiscal plans "promising first step"

...achieve healthy public budgets, central bank (CNB) Vice-Governor Ludek Niedermayer wrote in a newspaper.

In one of the first assessments of the fiscal plans by any CNB policymaker, Niedermayer said on Tuesday the country's budget deficit problems were not so serious as to warrant emergency spending cuts.

The government has proposed an overhaul to stabilise public finances despite controlling exactly half the seats in the parliament, which has fed market jitters that the cabinet would collapse and the deficit swell if its plans fall through.

"Political reality probably permits neither a return of social benefits to the original state nor a truly radical reduction in mandatory expenditure," Niedermayer wrote in an opinion column in the business daily Hospodarske Noviny.

"At the same time, the problem of our public finances is not such as to justify calling a 'state of emergency'," he said.

The European Union member's fiscal gap is forecast to widen to 4 percent in 2007 from 2.9 percent last year, above the EU's ceiling of 3 percent of GDP that is also required to gain entry to the bloc's single currency zone.

Niedermayer reiterated the CNB's standard line that record economic growth of 6.1 percent annually in both 2005 and 2006 should have allowed the government to run a budget surplus.

CNB policymakers meet on Thursday but are widely expected to hold interest rates steady for seventh consecutive month because inflation has hovered below its target range in recent months.

This year's rise in the deficit comes on the back of an increase in benefits worth over 1 percent of gross domestic product (GDP), approved shortly before last year's general election, lagging tax collection and a tapping of reserve funds.

The government's fiscal revamp -- raising sales tax, cutting income taxes and curbing an increasingly costly welfare state -- aims to bring the deficit to 3 percent of GDP in 2008, to 2.6 percent in 2009 and 2.3 percent in 2010.

FACTBOX ON GOVT'S TAX AND SPENDING PLANS.....[ID:nL03553262]