(Repeats story published over night)
* Fiscal gap to narrow to 4.6 pct from 5.3 pct
* Approval seen in parliament
* For FACTBOX, click on []
By Jan Korselt
PRAGUE, Sept 23 (Reuters) - The Czech government approved
the 2011 central state budget draft late on Wednesday, proposing
wage and spending cuts to narrow the budget deficit in the
environment of a mild economic recovery.
The government has agreed to cut the overall public sector
deficit to 4.6 percent of gross domestic product next year from
around 5.3 percent this year, mainly through cuts in wages,
welfare and operating spending as well as through extending tax
hikes introduced last year and slightly raising taxes further.
The draft, expected to win approval in parliament where the
cabinet has a strong majority, sees the central government's
deficit at 135 billion crowns next year, down from the planned
163 billion this year.
"I am glad that we managed to keep the 135 billion target,"
said Finance Minister Miroslav Kalousek. "It is a very tight
budget."
The government's conservative fiscal stance has pleased
investors, leading to a 5 percent firming of the crown currency
since the May election, and a 75 basis point drop in yield on
the benchmark 2019 government bond <CZ09YT=RR>. The spread over
German debt has dropped by 44 basis points to 106 points in the
same period.
The three-party coalition government aims to balance the
budget by 2016 and the brunt of the main reforms which will test
its resolve will come throughout 2012.
Kalousek said the government aimed for a 3.5 percent deficit
in 2012 and 2.9 percent in 2013, but warned further reforms
could alter the targets.
The main collision points will be the revamp of the pension
system and healthcare, which pose an increasing burden on the
budget due to population ageing and growth in the cost of
medical care.
The Czech Republic has relatively low debt of around 37
percent of gross domestic product this year, half the European
average, but it has begun to rise fast.
The rise in entitlements such as pensions has been putting
increasing strains on the budget, especially when the global
crisis ended years of fast economic growth.
Analysts have said that a successful reform would lead to an
upgrade of the Czechs' credit ratings, at A1 from Moody's and A
from Standard and Poor's with a positive outlook.
The government's plans face protests from the left-wing
opposition as well as the unions.
About 40,000 public sector workers marched through Prague on
Tuesday to protest against the austerity measures that include a
10 percent cut in the overall wage bill, to be done partially by
axing jobs and partially by wage reductions.
The government said it would not back off the targets,
because that would only lead to harsher measures further in the
future.
(Reporting by Jan Korselt; writing by Jan Lopatka; editing by
Carol Bishopric)
