* Czech FinMin to propose measures to cut deficit
* Sees euro possible in 2016 or 2017 if steps taken
* Policy changes up to next government
* IMF says reforms to spending unavoidable
(Adds details, quotes, IMF)
PRAGUE, Jan 25 (Reuters) - The Czech interim cabinet will
propose budget savings in the next two weeks that would lead to
euro adoption in 2016 or 2017 but only the country's next
leadership will decide how to go forward, Finance Minister
Eduard Janota said on Monday.
He said the government led by non-affiliated Prime Minister
Jan Fischer would make recommendations that would lead to a
narrowing of the deficit below the euro entry limit of 3 percent
of gross domestic product by 2013 or 2014, in time to join the
16-member euro zone three years later.
But he said any action on the budget will be up to the next
cabinet formed after election due in May this year.
"(The speed of reduction) will be up to the political
government that will be elected," Janota told reporters.
"It will depend on what instruments the government chooses,
whether it will put more stress on taxes or savings."
Janota did not specify what the proposed measures would be,
but said they would not include any significant tax hikes apart
from extending temporary increase of sales and excise taxes and
insurance for top earners approved for this year.
The favourite in the election, the leftist Social Democrats,
have said they would hike income taxes but not cut any social
spending, and that their plan would be enough to adopt the euro
in 2014 or 2015. Analysts said that looked too optimistic.
The government will propose the savings and revenue measures
in connection with the annual euro convergence programme, a
report on progress towards the euro, which it plans to complete
and submit to Brussels in two weeks.
The Czechs have no formal target for euro entry. The global
economic crisis and widening of the budget gap to about 6.6-7.0
percent last year has pushed the expected entry date into the
future from an earlier mulled 2013 date.
The International Monetary Fund (IMF) said on Monday the
Czechs could not avoid rationalising their mandatory and social
spending, and said they risked that budget deficits would remain
over 5 percent in the medium term without further action
[].
This would come despite an improvement in the growth
outlook, which the IMF sees at 1.5 percent this year, up from
previously forecast 1.3 percent. The Finance Ministry raised its
forecast on Monday to 1.3 percent from 0.3 percent
[].
The Czech financial sector withstood the global crisis
without any need of state assistance, but an about 4 percent
economic drop last year following years of fast growth revealed
the budget would generate large gaps at times of slower or
negative growth.
The country also needs to reform it pension system, burdened
by demographic trends.
The European Union has called on the Czechs to cut the
deficit to the three percent ceiling set by EU rules by 2013.
(Reporting by Robert Mueller, writing by Jan Lopatka; Editing
by Andy Bruce)
