UPDATE 1-Czech FinMin sees 2.95 pct/GDP 2008 budget deficit

...

PRAGUE, Sept 3 (Reuters) - The Czech Finance Ministry proposed on Monday a 2008 state budget with a deficit of 70.8 billion crowns ($3.49 billion), which would secure an overall public sector gap of 2.95 percent of gross domestic product.

The proposed deficit is slightly below the 3.2 percent ceiling set in the cabinet's previously announced fiscal reform package.

The budget will be discussed by the cabinet before it is sent to parliament. Under the law, parliament must receive the draft by the end of September.

The ministry said that it saw the deficit falling further to 2.6 percent of GDP in 2009 and 2.3 percent in 2010, under the EU's ESA 95 methodology. Those numbers are slightly lower than previously planned 2.9 and 2.5 percent deficits in 2009 and 2010.

Prague has officially renounced 2010 as the target date for euro entry, mostly due to a widening fiscal imbalance.

The government expects this year's deficit to reach around 4 percent of GDP, despite economic growth of over 6 percent.

Prime Minister Mirek Topolanek has said the country must reform its pension and health system as well as the labour market before it can join the euro.

Topolanek said the Czech Republic may still join the euro zone in 2012, as proposed by Finance Minister Miroslav Kalousek, but the cabinet refused to adopt any official target date when it discussed euro adoption strategy last week.

The Finance Ministry said it saw central state budget revenues rising 9.2 percent next year to 1,037 billion crowns, while expenditures were seen rising by 6.4 percent to 1,107 billion.

The budget includes an expected 76.1 billion crown injection from the EU budget.

The central state budget is the main part of the public budgets, which also include regional budgets, health insurance system and various off-budget public funds.

The crown currency was flat at 27.720 to the euro after the news.