Czech leaders make no headway on deficit reduction

                                
 * Politicians shun budget cuts ahead of Oct vote
                                
 * Next government likely to handle soaring deficit
                                
 
                                
 By Jan Korselt
                                
 PRAGUE, Aug 27 (Reuters) - Czech political leaders on
Thursday balked at a finance minister plan to cut the 2010
budget deficit to a tolerable 5 percent of gross domestic
product, pouring cold water on hopes for an agreement before an
autumn election.
                                
 The central state budget deficit, main part of the overall
public sector balance, has been swelling rapidly as an economic
crisis hit Czech export-oriented businesses, curbing tax revenue
and hiking expenditures on rising welfare spending.
                                
 Finance Minister Eduard Janota, part of a technocrat
government, proposed measures to cut the budget gap to 160
billion crowns ($8.93 billion) from the proposed 230 billion,
corresponding to a 7 percent/GDP public sector gap.
                                
 He planned to approve them in one package, in a fast track
procedure before the October general election.
                                
 "Leaders of both (main) parties expressed scepticism with
regards to this plan," Prime Minister Jan Fischer told a news
conference after meeting bosses of the two main political
parties earlier on Thursday.
                                
 Economists have warned a fiscal gap above 5 percent of the
country's total output could worsen ratings, hike risk premiums
on Czech assets and subsequently costs for servicing the
government debt.
                                
 Such a high deficit also diminishes chances for a fast euro
adoption as it will take time to bring the gap to the euro zone
prescribed 3 percent.
                                
  But politicians shunned pledges of spending cuts and
unpopular value added tax hikes ahead of the election scheduled
in six weeks.
                                
 Leftist Social Democrats opposed a lack of a progressive
income tax among the proposed measures and the plan to approve
them in one package.
                                
 The Civic Democrats rejected the fast track procedure.
                                
 "This administration should make all non-legislative steps
to reduce the deficit... legislative (steps) are impossible to
push through due to time constraints," Civic Democrats leader
Mirek Topolanek told a news conference after the meeting.
                                
 The rightist party wants to approve the budget as proposed
and have a new government coming from the election handle any
cuts. Based on fresh economic data the new administration would
put together a new budget by mid 2010. It would be valid for the
rest of 2010 and through 2011.
                                
 "(Fischer's cabinet) should... leave it up to the next
parliament and government to adopt the changes rapidly, whether
in the form in which they were prepared by this administration
or in a different form, depending on the election outcome,"
Topolanek said.
                                
 If Janota's plan to trim the gap before the election fails,
the outgoing administration will make its savings package
available for the new cabinet, Fischer said.
                                
 Janota had warned soaring deficits could result in Czechs
facing a crisis such as that which threw Hungary into a
contraction in 2007 when the rest of the region was enjoying 5
percent growth. [ID:nLJ609391]
                                
(Additional reporting by Robert Mueller, Writing by Jana
Mlcochova; editing by Chris Pizzey)