UPDATE 1-Czech c.bank ups fiscal gap forecasts for 2006-07

(Adds c.bank forecast and comment for 2008)

PRAGUE, Nov 3 (Reuters) - The Czech central bank (CNB) has raised its forecasts for public finance deficits for this year and next after an upward revision to 2005 fiscal data, the CNB said in a quarterly update of its Inflation Report.

The bank increased its estimate for the 2006 shortfall to 3.5 percent of gross domestic product from 2.4 percent, as calculated under the European Union's harmonised ESA 95 rules for national accounting.

It also lifted its estimate for the 2007 gap to 4.0 percent from a previous 3.0 percent of GDP.

"The estimate of the fiscal impulse, which approximates the impact that fiscal policy has on economic growth, does not change because of this revision. Still, there is a modest rise in the impulse, mainly due to lower than expected tax collection," said the Inflation Report.

Last month, the 2005 public finance gap was officially revised to 3.6 percent of GDP from an earlier 2.6 percent.

The bank said it expected the public sector deficit to narrow slightly to 3.7 percent of GDP in 2008. That was a touch above the 3.5 percent forecast included in the euro convergence analysis approved by the government last week.

"(The bank has) a relatively benign assumption for 2008 at the moment," Tomas Holub, head of the monetary and statistics department at the CNB, said in a presentation delivered to financial markets analysts and published on the bank's Web site.

In the minutes to policymakers' monthly rate-setting meeting released on Friday, the CNB said it found it difficult to make any predictions about fiscal policy beyond next year due to political paralysis following an inconclusive June election.

"The fiscal policy outlook beyond 2007 was currently very blurred owing to political uncertainty," said the minutes.

The June 2-3 election ended in deadlock with centre-right and leftist parties both winning 100 seats in the lower house.

Since then, the two sides have bickered over how to break the impasse and it remained unclear what government, if any, will be formed or whether parties will agree to dissolve the parliament and call early elections.

** For FACTBOX listing key forecasts in new euro adoption road map, double click on [ID:nL25380203] ** For TEXT of central bank meeting minutes..[ID:nL03883315]

((Reporting by Marek Petrus; Editing by Alan Crosby, David Christian-Edwards; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477))

Keywords: ECONOMY CZECH BUDGETS