* Govt approves euro convergence plan
* Plan makes euro entry possible in 2016-2017
(Adds quotes, background)
PRAGUE, Feb 8 (Reuters) - The Czech Republic's caretaker
cabinet approved a plan on Monday to cut the public sector
deficit in the coming years so the country can adopt the euro by
2016 or 2017.
The plan follows a demand from Brussels for Prague to cut
its wide fiscal gap to the EU-prescribed level of 3 percent of
GDP by 2013 and comes ahead of a May general election in which
parties have clashed over whether tightening belts or spending
more is the best way to recover from the global economic crisis.
Finance Minister Eduard Janota said the programme assumed
trimming the public sector gap to the required level in 2013 or
in 2014, which he has said would allow for euro adoption three
years later, after a stay in the ERM 2 currency grid.
But the report did not set an actual date for entry, and the
plan may have limited relevance because the caretaker cabinet
will be replaced by a government after a May general election
and the new administration may take a different course.
"The government approved the convergence programme... in
which it shows the willingness to consolidate the public
finances and the state budget deficit," Prime Minister Jan
Fischer told reporters.
The government will submit the report, part of the EU
state's annual convergence programme, to Brussels by Feb 15.
NO TARGET
The Czechs have no formal target for euro entry.
And in December, the government and the central bank agreed
there was no point in setting a euro entry target date now as
the economic crisis worsened the country's preparedness for the
adoption. []
Fischer said the plan assumed "painful" savings of around
100 billion crowns ($5.23 billion) by 2013.
Janota had earlier said the plan included introduction of a
new personal income tax rate for top earners with an income
above 1.7 million crowns ($88,910) a year and extending
temporary increase of sales and excise taxes and insurance for
top earners approved for this year.
Other tax hikes and spending cuts will have to be
implemented but Janota did not specify them, saying they would
be up to the next government.
Economists say the Czech public finances are fine for now
with the government debt seen only at 38.6 percent of GDP this
year comfortably below the euro zone 60 percent threshold, while
a 5.3 percent of GDP fiscal gap is smaller than most EU members.
But they still welcome measures to cut costs and push
structural reforms, saying the budget is heavily burdened by
mandatory spending, including pensions and welfare fees, and
that inaction now could lead to a spiralling deficit and debt
crisis later.
The main leftist party, the Social Democrats, leads opinion
polls. It has pledged to hike taxes for the rich and maintain
social benefits for pensions, maternity leave, and other items
that have been slated for cuts and argue it will better shield
those most affected by the crisis.
The second-place, right-of-centre Civic Democrats, who have
seen their support fall, grudgingly admit the need to raise some
taxes, mainly sales and excise ones, but say cuts to the benefit
system are the best way to create sustainable growth.
(Reporting by Robert Mueller; writing by Jana Mlcochova;
editing by Michael Winfrey)
