RPT-ANALYSIS-Eyes on polls, Czech govt makes little in savings

(Repeats story published late on Tuesday)

By Jan Lopatka

PRAGUE, Sept 26 (Reuters) - The new Czech rightist government's first steps point to early elections next year rather than to any serious attempt to rein in booming spending and budget deficits.

The country has already all but abandoned its 2010 euro entry target, which the new cabinet blames on loose spending by the previous leftist administration.

And the new minority government is weak and ill-equipped to undertake the reforms needed to put the budget in order.

Late on Monday the government, which will likely lose a confidence vote due by Oct. 4, approved a 2007 budget draft with a 91.3 billion crown ($4.08 billion) gap.

This figure would rise by another 31 billion crowns if privatisation revenues are excluded and a further 27 billion if laws now in parliament, delaying some spending and raising taxes, do not win approval.

"I don't see any reform steps by the Civic Democrats. They are either taking over things from the past government, such as next year's budget, or taking short-term populist steps," said David Marek, chief economist at Patria Finance.

The Finance Ministry forecasts overall public sector deficit of 4.0 percent of gross domestic product next year, far above the previous Social Democrat cabinet's 3.3 percent target -- which the Socialists themselves acknowledged was unattainable.

The rise comes despite record economic growth of 6 percent this year and reflects neglected reforms of the health, pension and welfare systems, aggravated by tens of billions of crowns in 2007 spending approved by most parties ahead of a June election.

The government could not do much since its appointment this month to change the budget draft, originally prepared by the previous government. It ordered some savings, such as on new buildings, but other new initiatives it took further weaken the fiscal position rather than improve it.

Last week, the cabinet approved a 6.2 percent hike in pensions -- in line with what the Social Democrats had proposed and about 5 billion crowns more than required by law.

Meanwhile the Civic Democrats are trying to push a cut in petrol tax through parliament. They are also trying to limit an increase in the cigarette tax hike, proposed by the previous cabinet and worked into the budget draft.

"The Civic Democrats want to rule only until next year," said political analyst Petr Just. "Such proposals (tax cuts and welfare hikes) are pre-election behaviour."

The tax proposals, as well as the budget itself, face an unclear fate in parliament, split exactly in half between right and left-wing factions.

And with the prospect of the cabinet losing the confidence vote, analysts believe that eventually the political stalemate will lead to early polls, thus stifling any drive to implement badly-needed reforms for months to come.

"The prospect of elections should continue to work against the introduction of any unpopular reform, and the likelihood of a government with a strong mandate continues to look remote to us," said Morgan Stanley analyst Oliver Weeks in a report.

(To see 'FACTBOX-Czech budget process and provisional budget' click on [ID:nL26460061])

((Reporting by Jan Lopatka, editing by Ron Askew; prague.newsroom@reuters.com; Reuters Messaging: jan.lopatka.reuters.com@reuters.net; +420-224 190 474)) ($1=22.38 Czech Crown)

Keywords: ECONOMY CZECH BUDGET