RPT-Czech parliament approves 2007 state budget

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By Jan Korselt

Czech lawmakers approved the 2007 state budget on Wednesday as leftist and rightist parties voted together to approve the legislation that sees a 91.3 billion crown ($4.35 billion) shortfall.

The approval was expected as both the ruling rightist Civic Democrats and the main opposition leftist Social Democrats contributed to the draft and wanted to avoid entering a restrictive provisional budget regime.

The central government budget, the biggest part of public finances, targets a deficit of 91.3 billion crowns which translates into a gap of 4 percent of gross domestic product (GDP) in the country's overall fiscal balance.

However, four budget amendments were approved earlier in the day that could boost the shortfall by some 6.5 billion crowns to its highest since a record gap four years ago.

"We got ourselves into a debt spiral which resulted in the budget we have here today. This, of course, is the consequence of the policies of the past governments..."But) if we did not approve this budget, we would create an even more chaotic state than we are in now," said Prime Minister Mirek Topolanek.

Topolanek's government resigned in October after losing a confidence vote. But it remains in a caretaker position as he negotiates a new administration.

The talks are centred on forming a broad coalition government with the Social Democrats and the centrist Christian Democrats, but large gaps remain on key policy issues for a new government such as tax reforms.

The four amendments seek to cut spending on pensions, healthcare and other expenditure mandated by law to create room to divert funds towards farm subsidies and hundreds of small projects presented by deputies from both sides of the floor.

Because of the amendments, rightist Finance Minister Vlastimil Tlusty actually voted against his own budget.

"The approval sends a positive signal that parliament at least agreed on the budget, even if it has not been able to agree on a government," said Miroslav Plojhar, chief economist at Citibank in Prague.

"The potential rise in the deficit by 6.4 billion crowns is not such a big problem. There is a more significant risk of the budget getting into real trouble if economic growth slows or privatisation receipts are lower than the government expects."

[PRAGUE/Reuters/Finance.cz]