RPT-Czech FinMin hopeful on 2007 budget approval

(Repeats story published late on Tuesday)

By Marek Petrus

PRAGUE, Oct 24 (Reuters) - The Czech 2007 draft budget looks likely to clear its first parliamentary hurdle after Finance Minister Vlastimil Tlusty said on Tuesday opposition parties had signalled they could vote for the minority government's plan.

The budget draft targets a deficit of 91.3 billion crowns ($4 billion), down from this year's forecast shortfall of more than 100 billion crowns, but falls short of any fundamental reforms economists say are needed to prepare for euro adoption.

The minority rightist government needs to win support from opposition parties to pass the draft budget in the first of three readings, scheduled to begin on Thursday morning.

Civil Democrat Tlusty told the daily Pravo newspaper that the centrist Christian Democrats, Greens and Communists had objected to the budget's structure, but signalled they may let it go through in the first of three readings.

The three parties and Civic Democrats together have 126 deputies in the 200-member house.

"I am quite favourably surprised," Tlusty was quoted as saying in an interview. "(This) raises hopes for not only the budget but also for political and economic stability in the country."

The five-month-old parliamentary deadlock following a June election has fanned investor concerns over the fiscal outlook.

The cabinet of Prime Minister Mirek Topolanek remains in power as a caretaker administration after losing a confidence vote in the lower house earlier this month, where right and left parties have the same number of seats as each other.

DEFICIT TARGET 'UNDER THREAT'

If no budget is approved by Jan. 1, public finances will have to follow a provisional budget, limiting the government's discretionary spending at the level of the previous year.

The Communists said they wanted to avoid that.

"So even if the state of public finances is chaotic, (the budget) must go through in the first reading," Communist Vice-Chairman Jiri Dolejs told Reuters.

But the Social Democrats, the second biggest party in the house after the Civic Democrats, have opposed a plan to sell a small stake in utility CEZ <CEZPsp.PR> to raise 31 billion crowns ($1.37 billion) needed to keep a lid on the deficit.

"We will not vote for the budget unless the government drops the CEZ sale plan," Bohuslav Sobotka, Social Democrat Vice-Chairman, told Reuters.

"We have submitted proposals on how to solve the situation and are waiting for a reaction from the Civic Democrats."

Analysts said the budget was already stretched and warned about overshooting its deficit target. The gap will widen by up to 27 billion crowns unless parliament delays approved spending increases on sickness benefits and the civil service.

"We'd argue that the ODS (Civic Democrats) cannot do without the 31 billion crowns from the sale of CEZ, given that the deficit target is already under threat as it is," said Francesca Beausang, analyst at 4Cast consultancy in London.

Budget revenue also faces a shortfall of as much as 5 billion crowns, according to the finance ministry, if the parliament curbs a proposed tobacco tax hike as of Jan. 1.

((For FACTBOX on budget forecasts and the process and timeline of approving a budget draft, double click on [ID:nL16534799]))

((Editing by Mike Peacock; 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)) ($1=22.57 Czech Crown)

Keywords: ECONOMY CZECH BUDGET