UPDATE 2-Czech opposition sets budget support terms

(Writes through with Paroubek from news conference)

By Jan Lopatka

PRAGUE, Sept 25 (Reuters) - The Czech leftist opposition Social Democrats may support the right-wing minority cabinet's 2007 budget if it meets their conditions on privatisation and taxes, party chief Jiri Paroubek said on Monday.

Votes from the Social Democrats for the budget, with its planned 119 billion crown ($5.36 billion) gap, are key, because the new right-wing government lacks a parliamentary majority.

Paroubek told a news conference that the government should not sell a 16 percent stake in power firm CEZ <CEZPsp.PR>, due to high dividends the company could pay.

"This sale is also risky from the point of view of price and the quality of investor," Paroubek told a news conference shown live on television.

At the same time, the government should approve the sale of a 49 percent stake in Prague Airport to win his party's support, Paroubek added.

He also demanded the Civic Democrats drop their proposals to cut revenues. He did not give details but the main changes proposed by the Civic Democrats are cutting excise taxes on petrol and raising cigarette taxes less than proposed by the former Social Democrat cabinet.

"In case these conditions are met, the Social Democrats will, for the interest of the country, seriously consider support for such budget draft for 2007," he said.

The government was debating on Monday the 2007 budget draft and the sale of the CEZ stake, which would reduce state ownership in the power firm to around 51 percent. A news conference was scheduled for 1400 GMT.

Finance Minister Vlastimil Tlusty has said the government would cut the 2007 deficit by 31 billion crowns to 88 billion -- identical with a draft prepared by the previous cabinet -- if the sale of the CEZ shares goes through.

The CEZ stake is worth 72 billion crowns ($3.23 billion), but part of the revenue would be used for other purposes.

Paroubek agreed with using privatisation revenue to cut the deficit, but it should come from the airport sale.

BIG DEFICIT, EURO DELAY

Without the privatisation revenues, the planned budget gap is the biggest-ever in the central European country, mainly due to social spending approved ahead of an election in June.

The Finance Ministry expects the overall public sector shortfall at 4 percent of gross domestic product next year, far above the 3.3 percent target set in the country's euro convergence programme.

That figure is not dependent on the potential privatisations because such one-off revenues cannot be included under the EU's ESA 95 accounting rules used for the public sector deficit.

The widening, despite record strong economic growth seen at 6 percent this year, has led the new cabinet to effectively ditch the previous administration's 2010 euro adoption target.

It is unclear who will be implementing the 2007 budget and potential asset sales, because the government seems set to lose a confidence vote due by Oct. 4.

It would then remain in power as a caretaker until a new cabinet is formed, which may take weeks or longer. Analysts expect the stalemate to lead to an early election next year.

((Reporting by Jan Lopatka, editing by David Christian-Edwards; prague.newsroom@reuters.com; Reuters Messaging: jan.lopatka.reuters.com@reuters.net; +420-224 190 474))

($1=22.22 Czech Crown)

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Keywords: ECONOMY CZECH BUDGET OPPOSITION