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Czech government to hike public sector pay next year

PRAGUE, Sept 13 (Reuters) - The Czech centre-left ruling coalition on Friday agreed a public sector wage hike that will increase government spending at a time when economists are warning that budget revenue projections may come up short.

The pay decision, which covers about 290,000 state employees, will allow the government to complete its draft budget for next year.

Prime Minister Andrej Babis’s two-party minority government aims to keep the budget deficit at 40 billion crowns in 2020, unchanged from this year’s target. It is counting on rising state income to pay for its spending promises.

Economists, though, including those at the Czech Fiscal Council, the state budget watchdog, have said a weaker growth outlook could make it hard to meet those revenue goals.

The wage increase agreed on Friday - which will give state workers from bureaucrats to cleaners a fixed monthly pay increase of 1,500 crowns ($64) - should raise 2020 budget spending by 5.2 billion crowns ($223 million).

Separate from Friday’s agreement, teachers have already been promised a 10% wage hike.

“The last question of the 2020 budget is solved,” said Finance Minister Alena Schillerova on Twitter.

The Finance Ministry expects economic growth to slow to 2.2% in 2020 from 2.4% this year and it sees downside risks to the outlook.

The Czech economy, like others in central Europe, has held up amid a global slowdown thanks to strong domestic demand fuelled by low unemployment and rising wages.

But it is facing risks from weakness in its main trading partner Germany as well as uncertainty over Britain’s departure from the European Union and global trade tensions.

Despite this, the Finance Ministry agreed to higher budget demands from government ministries in August that added 20 billion crowns to the ministry’s original spending plans. At the same time it has revised its tax revenue forecasts for next year to match that spending.

The Fiscal Council has said part of the expected income might not arrive due to possible delays in approving the necessary tax laws, including a digital tax on global internet giants.

The Council indicated in September that according to preliminary plans, the Finance Ministry will also postpone a value-added-tax rebate for companies to January 2021, from December 2020, when payments are usually made. This one-off move increases next year’s budget revenue by 17 billion crowns.

The government is scheduled to debate the 2020 budget on Monday before approving it and sending it to parliament. ($1 = 23.2710 Czech crowns) (Reporting by Robert Muller; Editing by Giles Elgood)