UPDATE 1-Czech lower house approves budget in final reading

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The lower house of the Czech parliament gave final approval to the 2008 budget on Wednesday, aiming to cut the overall public sector gap to 2.95 percent of gross domestic product from 3.4 percent expected this year.

It is the first budget drafted by the centre-right cabinet which was appointed in January with an agenda of liberal economic reforms following eight years of leftist rule.

The deficit reduction will come on the back of higher tax revenues brought by fast economic growth, welfare cuts and transfers from the European Union.

The lower house voted 100 to 97 to support the central government budget, which forms the main part of the overall fiscal balance that is watched by the European Union.

The Czechs will breach the 3 percent EU deficit ceiling this year and the EU has told them to narrow the gap by 2008.

The Czech Republic does not plan to adopt the euro until some time after 2012, but still must to adhere to EU deficit rules.

The central government budget sees a deficit of 70.8 billion crowns ($3.94 billion) next year on revenues of 1,037 billion.

That is below a 91.3 billion gap approved for this year and slightly below the latest 2007 Finance Ministry outlook which sees a 76 billion shortfall.

The budget is based on a forecast of economic growth in the central European country slowing to 5 percent next year from 5.7 percent seen in 2007.

The crown currency was unchanged after the vote, standing at 26.220 to the euro , off all-time high of 26.16 seen earlier on Wednesday.

(Reporting by Petra Vodstrcilova, writing by Jan Lopatka) ($1=17.83 Czech Crown)

Keywords: CZECH BUDGET/

[PRAGUE/Reuters/Finance.cz]