RPT-Czech government wins key vote for 2008 budget

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By Petra Vodstrcilova

The lower house of the Czech parliament gave final approval to the 2008 budget on Wednesday, aiming to cut the overall public sector gap thanks to fiscal reforms and economic growth.

The first budget drafted by the centre-right cabinet, appointed in January with an agenda of liberal economic reforms, sees the fiscal gap falling to 2.95 percent of gross domestic product from 3.4 percent expected this year.

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.

It was the second decisive victory in one day for the often shaky three-party cabinet following the failure of a no-confidence motion initiated by the opposition.

"We... received a new mandate for the government, we approved the budget in a form we wanted, I am happy with today," Prime Minister Mirek Topolanek said after the vote.

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 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 of 5.0 percent in the central European country.

The crown currency was unchanged after the vote, standing at 26.210 to the euro , off the all-time high of 26.16 seen earlier on Wednesday.

REFORMS AHEAD

The government has pledged to slash taxes and social benefits to motivate people to work rather than live on welfare in a series of reforms following eight years of leftist rule.

It has cut income taxes mainly for the richer Czechs, unifying all income tax brackets at the single rate of 15 percent, effective in January, and cut the corporate tax.

It has also raised the sales tax on many basic items including food, cut welfare payments and introduced fees for doctor visits.

Analysts have mostly praised the plan as a step in the right direction but said more should to be done to stabilise the public budgets, especially at a comfortable time when economic growth is peaking at around six percent this year.

The government has acknowledged it needs to do more to achieve its target of slashing the deficit to 2.3 percent of GDP in 2010, and plans further reforms to the pension and health systems. (writing by Jan Lopatka; editing by Tony Austin)

($1=17.83 Czech Crown)

Keywords: CZECH BUDGET/

[PRAGUE/Reuters/Finance.cz]