UPDATE 1-Czech govt approves 2008 budget draft

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PRAGUE, Sept 19 (Reuters) - The Czech government approved the 2008 central state budget draft on Wednesday, a key part of its aim to lower the overall public sector deficit to 2.95 percent of gross domestic product.

The Finance Ministry proposed a 70.8 billion crown ($3.60 billion) central government deficit, down from 91.3 billion crowns this year.

A cabinet spokeswoman said she believed there were no material changes to the draft but made no further comment. The government was due to hold a news conference at 1000 GMT.

The government has just 100 seats in the 200-seat lower house of parliament, but has been supported in key votes by two leftist deputies who have left the opposition ranks and sit as independents.

The centre-right government aims to slash the overall public sector gap, which includes the state budget, regional budgets, health insurance and a number of off-budget funds, from around 4 percent expected this year.

The European Union, which the Czech Republic joined in 2004, has been pressing to push the deficit below the EU ceiling of 3 percent of GDP.

Politicians, however, moved off the deficit-reduction path before a general election last year, approving welfare spending increases worth dozens of billions of crowns, which deepened the budget gap despite 6 percent economic growth.

The new government has pushed through a range of tax changes and welfare cuts, and plans further changes to the health and pension systems to cut the deficit to 2.3 percent by 2010.

The tax and welfare reform package is due to be discussed by the upper house, the Senate, later on Wednesday. The government has a strong majority in the upper house.

The crown currency was unchanged at 27.64 to the euro after the news, down from 27.500 late on Tuesday and all-time high of 27.385 seen on Monday.