UPDATE 1-Czech parliament approves tax, spending reforms

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The Czech lower house of parliament gave final approval on Tuesday to an overhaul in taxes and welfare, a key piece of legislation in the government's drive to cut the budget deficit and boost growth.

The lower house, where the centre-right coalition has just 100 out of 200 seats, voted to introduce a flat tax for all personal income levels and compensate for the revenue drop by higher sales tax and a cut in health and social benefits.

Prime Minister Mirek Topolanek had said he would seek an early election if the reforms failed to be approved, and the result was highly uncertain right to the end due to dissent from several backbenchers.

But Topolanek's promise to consider another tax cut in 2009 brought all but one government deputy into line, and the plan was approved 101-99 with the help of two opposition rebels who have backed the administration on several key votes since it took power in January.

"I am not the one who is cheering after a victory ... I am trying to look forward. I am already contemplating medium-term steps which will follow this (budget) stabilisation stage," Topolanek said after the vote.

The plan still faces scrutiny in the upper house, the Senate, but it is expected to sail through there thanks to a strong government majority.

The government aims to cut the budget deficit to 3.2 percent of GDP in 2008 and, along with further measures to be introduced later, to 2.5 percent in 2010, from 4 percent seen this year.

The crown currency strengthened to 27.64 to the euro after the vote from 27.68.

[PRAGUE/Reuters/Finance.cz]