Czech government approves 2007 pension increase

PRAGUE, Sept 20 (Reuters) - The new Czech minority government confirmed the previous cabinet's plan to raise pensions by 16.9 billion crowns ($751.8 million) from January, the Labour and Social Affairs Ministry said ion Wednesday.

The government led by Civic Democrats approved the hike despite an outlook for sharp jump in the public sector deficit next year to 4.6 percent of gross domestic product, far above 3.3 percent outlined in the country's euro convergence programme.

The average pension will rise by 500 crowns to 8,690 crowns per month, the ministry said in a statement. The rise equals to 6.2 percent, which is above 4.2 percent hike required by a legal formula following consumer prices and wages.

"The costs will be fully covered by income from pension insurance revenues," it said.

The government is due to discuss the entire 2007 central state budget on Monday. It has said it expected central government deficit -- the main part of the public sector gap -- to reach 101-127.6 billion crowns.

The cabinet lacks parliamentary majority and is expected to lose a confidence vote due by Oct. 4.

Weeks or months of further political instability are expected due to a tie between centre-right and leftist forces in a June election. Analysts say an early election next year is a possible outcome.

The stalemate has crippled policy making in the face of the rising spending which has almost certainly ruled out euro adoption in 2010, a target set by the previous leftist government.

The new government said reforms must take priority to euro, and set no new adoption target.

The rightist administration has also proposed to limit planned rise in excise taxes and to cut the tax on petrol. Those measures are expected to face stiff opposition in parliament. ((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))

mini ($1=22.48 Czech Crown)

Keywords: ECONOMY CZECH BUDGET