* Approval by parliament uncertain
* PM says vote will be a test of confidence
* Main rightist party backs plan, but accepts no changes
* For factbox double click on []
(Adds main rightist party, background, market reaction)
By Jana Mlcochova
PRAGUE, Sept 21 (Reuters) - The Czech cabinet proposed tax
hikes and spending cuts on Monday aimed at slashing the budget
deficit and setting up a showdown with political parties, and it
warned it may quit if the plan fails in parliament.
The Czech Republic has suffered a deep economic drop from
record growth rates in the past years, exposing long-term
erosion of the public budgets due to rising spending on pensions
and welfare.
But politicians have been reluctant to commit to unpopular
measures ahead of an election planned by mid-2010, leaving the
interim non-political cabinet in a difficult position as it
tries to put together next year's budget.
Prime Minister Jan Fischer told reporters the proposed
measures would cut the central European country's 2010 fiscal
gap to 5.2 percent of gross domestic product from 7.5 percent
forecast under current legislation.
The package will go to parliament on Thursday and its fate
is unclear mainly due to demands from the leftist Social
Democrats to hike pensions and remove savings on welfare.
Fischer said the package would be a test of confidence in
his cabinet, reiterating earlier hints that he may quit if
parliament rejects it.
"I consider it possible to find a political agreement on the
proposed package, however difficult it will be," Fischer said.
"Of course the result of the debate in the lower house will
be a test of confidence toward the continuation of this
government and depending on the result ... the cabinet and I
personally will decide how to continue or not to continue."
The prime minister declined to directly say if he would
resign in case the plan falls through, saying "resignations are
to be handed in, not to be threatened".
Fischer said the measures would cut the central state budget
gap, the main part of the overall public sector finances, to
155.3 billion crowns, compared with around 230 billion
achievable without the changes.
PACKAGE PITS RIGHT AGAINST LEFT
The main rightist party, the Civic Democrats (ODS),
grudgingly supported the package as a whole but would not accept
any changes to it or approving it in parts.
"Calling this package a savings one requires a big dose of
imagination," a vice-chairman of ODS, Petr Necas, said, citing
its high proportion of tax hikes -- 50.3 billion versus 25.4
billion in spending cuts.
Necas said his party would support the measures but only if
the leftist Social Democrats do not strip off any of the
spending cuts during debate in parliament.
That is exactly what the Social Democrats plan to do. They
had no immediate comment on Monday but have said in the past
days that any savings on welfare were unacceptable, and on top
demanded a hike in pensions.
Finance Minister Eduard Janota said the package would have a
negative impact on GDP of around 0.6 percent, bringing growth
next year to about -0.3 percent.
Fischer's cabinet was due to leave after an early election
in October, but the plan to hold the polls failed due to a court
ruling and a withdrawal of support for early election by the
Social Democrats. The regular term ends in June next year.
The crown extended earlier losses after the news, giving up
gains with other central European currencies to bid down 0.2
percent on the day at 25.154 to the euro.
(Writing by Jan Lopatka; Editing by Stephen Nisbet)
