* Plans no tax hikes after election
* Pledges to cut deficit to 3 pct/GDP by 2012 by cuts
* Borrowing costs seen falling
By Robert Mueller and Jana Mlcochova
PRAGUE, April 13 (Reuters) - The main Czech rightist party,
if elected to form a coalition, would bring the public deficit
down to the EU's 3 percent of GDP limit by 2012, from almost
double that last year, without raising any taxes, its main
economic adviser said on Tuesday.
The Czechs will hold a general election at the end of May to
usher in a cabinet with a full political mandate, after a
year-long tenure of a caretaker government, which kept the
budget gap under control during the economic downturn but lacked
power to push through any fiscal reforms.
The right-wing Civic Democrats (ODS) trail the leftist
Social Democrats, but the Social Democrats are almost sure to
fall short of a majority, polls indicate. Some surveys suggest
the right-wing and centrist parties stand a chance of forming a
majority coalition.
"Based on our plans (on) how to deal with public finances
from now on ... including milestones in 2012 when we should
reach a 3 percent deficit and in 2017 (when we target) a
balanced budget, we can do without a rise in taxes," Martin
Kocourek, who heads the supervisory board at state power utility
CEZ <CEZPsp.RP> and is the Civic Democrats' main economic
adviser, told Reuters.
The interim government pushed through a hike in value-added
tax rates and excise taxes, and raised the limit for social and
health insurance taxes, to bring the public sector deficit to
5.3 percent this year from 5.9 percent in 2009.
Kocourek said that would be enough tax hikes for the next
four years.
"By pledging not to raise the tax burden, we will build
pressure to do something on the expenditure side," he said.
AGEING POPULATION
The Organisation for Economic Cooperation and Development
said last week the Czechs should bring the structural,
growth-adjusted deficit close to zero in the medium term,
targeting cutting expenditure. []
Kocourek said his party's programme was in line with the
developed countries club's recommendations.
Rating agencies -- the Czechs are rated 'A' by Standard and
Poor's' -- and investors are waiting to see how the new
administration tackles the budget, which was in deficit even
during years of record economic growth prior to the global
financial crisis.
The country's ageing population is straining the pension and
health systems and a generous welfare policy has led to abuse.
The Social Democrats staunchly oppose cutting benefits and
pension reforms. They propose raising taxes instead to cut the
deficit to 3 percent of GDP in 2013.
Analysts have doubted both parties' ability to cut the
deficit as fast as they promise.
Kocourek said the ODS aimed to freeze social payments at
current levels and tighten the rules for qualifying for them.
This would lead to savings of 15.9 billion crowns ($861.8
million) in 2011, he said.
He also predicted a dip in debt servicing costs.
Investors consider the central European nation's treasury
paper a safer bet than those of euro zone peripheral countries
because the Czech Republic has a relatively low debt level,
which is forecast to be around 40 percent of GDP this year.
Five-year credit default swaps <CZGV5YUSAC=R>, measuring
the market's perception of how risky the country is, were at
65.8 points on Tuesday, versus an all-time high of 350 in
February 2009. The yield on the five-year state bond <CZ5YT=RP>
traded at 2.756 percent on Tuesday, 57 basis points over the
German Bund.
(Editing by Susan Fenton)
