(Adds quotes from PM, details, crown)
By Jana Mlcochova
PRAGUE, Feb 16 (Reuters) - The Czech government approved a
fiscal stimulus package on Monday aimed to ease the impact of
the central European country's sharply worsening economic
downturn through tax cuts for businesses.
Prime Minister Mirek Topolanek said the plan would pour into
the economy funds worth 1.1 percent of gross domestic product,
or 1.9 percent including measures approved earlier.
He said the plan was based on the assumption the economy
would shrink by 1 percent or more this year, a darker scenario
than the central bank's 0.3 percent recession forecast and the
finance ministry's 1.4 percent growth outlook.
"The main tasks we have set in an effort to eliminate
impacts from an economic crisis include maintaining employment,
and keeping public finances stable," Topolanek told a news
conference.
But he also said the decline and the measures would boost
the country's public sector deficit "significantly" over 3
percent of gross domestic product, the limit set for euro
adoption.
Topolanek said the plan should save 50,000 to 70,000 jobs.
A finance ministry source said the plan totalled 73 billion
crowns ($3.3 billion), including previously approved measures,
and 40 billion crowns in fresh cuts in social insurance taxes
and other initiatives.
The Czech economy, like other export-reliant economies in
central Europe, has seen output plummet and job losses rise due
to slumping demand from the recession-hit euro zone.
The right-of-centre Czech government had long resisted
making any beefy steps to boost the flagging economy, expected
by most economists to contract slightly this year, but the fast
worsening economic outlook has forced it to rethink the policy.
The Hungarian government meanwhile annoucned plans on Monday
to raise the sales tax to finance cuts in tax on labour
[].
Topolanek said the plan was important for the future of his
centre-right coalition's future. Opposition Social Democrats
have criticised the government for its handling of the crisis
and propose their own measures.
The crown currency dropped to 29.160 to the euro <EURCZK=>
on Monday, the lowest since December 2005, as investors dumped
emerging Europe assets but did not react to the stimulus plan.
SMALL AND OPEN
The package includes few measures to boost household demand.
Analysts have said a better idea for the highly open economy,
where people buy many imported products and whose exports
account for 70 percent of GDP, was to boost the supply side.
"Authors of the package respect the fact that the Czech
economy is small and open so we can see measures tailored to
help companies in a situation when foreign demand is very low,"
said Tomas Vlk, an analyst at Patria Finance.
"Some of the measures go in the right direction, meaning
alleviating the corporate sphere, supporting exports,
alleviating through tax breaks," Vlk said.
The package calls for trimming social security payments,
speeding up the depreciation of property, and widening a
value-added tax write-off for the purchase of new cars.
It includes a capital injection for a state bank providing
credit to small-and-medium-sized enterprises, and a subsidy for
heat insulation in homes.
"Compared to packages in other countries (there) is a small
proportion of extra public expenditure. This will limit the real
influence of the package," said Pavel Mertlik, chief economist
with Raiffeisenbank in Prague.
(Additional reporting by Jan Korselt and Jason Hovet; Editing
by Jan Lopatka and Andy Bruce)
