UPDATE 1-Czech govt pushes fiscal reform, stakes future

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The Czech government approved on Wednesday tax and spending reforms aimed to cut the budget deficit, setting the stage for a battle in the divided parliament that may bring an early election.

The central European country has enjoyed record fast economic growth since it joined the European Union in 2004, but bloated social spending has boosted budget gaps and postponed plans to adopt the euro currency until 2012 or later.

The package mildly cuts benefits and other spending and rebalances taxes mainly in favour of richer Czechs. The plan has won sharp criticism by the leftist opposition but also some deputies in the ruling coalition.

The government holds just 100 seats in the 200-seat lower house of parliament, so any internal dissent may be fatal for the plan.

The three-party coalition has said it would seek early election if the parliament rejects the reforms in votes seen over the summer.

A path to early polls is complicated under Czech law and no election would happen at least until next year.

The package calls for cutting the budget deficit to 2.3 percent of gross domestic product in 2010 from about 4 percent expected this year.

The spokeswoman said there had been some changes to the complex proposal during Wednesday's cabinet meeting from an earlier version of the reform draft, but gave no details.

She said the government would hold a news conference at around 3 p.m. (1300 GMT).

The main features of the reforms are unification of all personal income tax rates at 15 percent, a move that would help top-paid employees, a corporate tax rate cut, higher sales tax on basic items such as food, and tougher conditions for welfare.

The crown currency was flat after the government vote at 28.23 to the euro .

[PRAGUE/Reuters/Finance.cz]