New Czech 2013 budget draft pressures rebels with cuts

Czech Prime Minister Petr Necas speaks during a parliamentary confidence vote in Prague April 27, 2012.

PRAGUE (Reuters) - The Czech government intends to pressure rebellious lawmakers who have resisted tax hikes by proposing instead to make 2013 spending cuts worth more than 1 percent of the country's annual output.

The cabinet will discuss the re-worked budget proposals on Monday after the government ran into opposition in pushing through parliament hikes in value-added and income taxes.

It serves as warning of cuts to come if rebellious deputies refuse to change opinion.

The new draft sticks to the center-right cabinet's strict austerity path that has helped it cut borrowing costs but has also contributed to the economy's slide into recession.

The ministry plans to trim the budget revenue and expenditure by 41.2 billion crowns ($2.10 billion) in 2013 compared with the previous budget plan, the new draft, obtained by Reuters, showed on Monday.

The new budget maintains the central government deficit at 100 billion crowns, resulting in expected total fiscal gap at 2.9 percent of gross domestic product (GDP).

Total revenue is projected at 1,043.7 billion crowns, down from 1,090 billion this year while total spending is seen at 1,143.7 billion, down from 1,195.3 this year.

The proposed cuts include a 16.5 billion drop in spending on projects co-financed from the European Union development funds, versus the original draft, which will mainly affect projects such as roads, railways and motorways. It also includes a 2.7 billion cut in spending on research and development.

The final shape of the budget will depend on the approval or rejection of the tax hikes in parliament.

The lower house of the parliament is set to vote on them in the third, final reading at a session starting on Tuesday.

CONFIDENCE VOTE

The center-right administration led by Petr Necas has combined the tax package vote with a confidence motion, putting pressure on a group of six rebellious deputies who refuse to back the tax hikes.

Support for the cabinet has shrunk to 99 seats in the 200-seat lower house and Necas needs every vote he can get.

Necas has won re-election as head of the ruling Civic Democrats at a congress over the weekend, cementing his position at the party ahead of the crucial vote, although it does not guarantee he will be able to tame the rebels.

Rating agencies have praised the Czech cabinet for its discipline in cutting the budget deficit, and yields on Czech government bonds dropped to record lows, with the 10-year paper hitting its all-time low 1.991 percent on Nov 2.

However, an increasing number of economists say the government is over-zealous in its austerity drive and is unnecessarily hurting growth.

Central banker Pavel Rezabek took a rare swipe at the government last month, saying the administration should stop undermining the bank's efforts to drag the economy out of recession by cutting interest rates to a record low.

($1 = 19.6609 Czech crowns)

(Reporting by Robert Mueller, writing by Jana Mlcochova; Editing by Ruth Pitchford)