Czech budget ends 2006 with CZK 97.3 bln deficit

...but below the latest Finance Ministry forecasts.

The ministry said on Tuesday that according to preliminary figures, overall revenues reached 923.3 billion crowns while expenditure climbed to 1,020.6 billion, leading to the country's second-biggest gap ever despite record high economic growth.

The budget was originally approved with a 74.4 billion crown gap, but ministry officials had forecast a shortfall of over 100 billion due to extra spending on pensions and an early payment of a guarantee due to the central bank.

The 97.3 billion gap equals around 3 percent of forecast 2006 gross domestic product, and is the largest part of the overall public sector deficit which the Finance Ministry and the central bank have forecast at 3.5 percent of GDP.

The 2006 result also includes a 45 billion crown December transfer of unused funds into reserves which can be spent next year. In 2005, 46.7 billion was transferred into reserves, and most of that money was drawn out during 2006.

Parliament has approved the 2007 central budget with a 91.3 billion crown deficit, driven by a rise in social spending, but the ministry has already said it would have to raise it by 7 billion crowns due to extra hand-outs pushed through by individual deputies.

The Finance Ministry and parliament have also scaled back a proposed increase in cigarette taxes, lowering forecast revenue by up to 5 billion crowns.

The government and the central bank have forecast the overall public sector gap to jump to 4.0 percent of GDP this year, far above the 3.3 percent target set in the country's Convergence Programme mapping out its intended path toward adopting the euro currency.

The new minority right-wing government, which resigned in October but still serves as a caretaker administration, has already dropped the 2010 euro entry target and has set no alternative date.

A planned new three-party centre-right coalition pledged last week to cut the public deficit to 3 percent in 2008 and 2.3 percent in 2010. But the coalition is one vote short of parliamentary majority and it is unclear if its planned cabinet, yet to be appointed by President Vaclav Klaus, can survive a confidence vote. (For a TABLE with budget details, click on [ID:nPRA001098])

[PRAGUE/Reuters/Finance.cz]