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Czech government approves wider budget gap as energy, Ukraine war hits

·2-min read

PRAGUE (Reuters) - The Czech government on Wednesday approved raising the 2022 budget deficit to 330 billion crowns ($13.6 billion) from a previously planned 280 billion crowns, adding up costs from surging energy prices and the war in Ukraine rise.

The government had already signalled it would run a higher-than-planned deficit this year, but that it would still cut the fiscal gap from record levels and return it to European Union-mandated levels during its terms.

The new budget, which should head in September to the lower house where the government has a safe majority, will add spending for measures like a reduced electricity rate to ease the burden of fast-rising power prices on households and firms.

It will also give a boost to pensions and family benefits amid surging inflation, and covers rising costs connected to the war in Ukraine, such as more defence spending and coping with the flow of refugees heading to the Czech Republic following Russia's invasion in February.

New spending also includes the recent purchases of gas into state reserves, a reaction to the worries over a shut-off of Russian gas supplies.

Overall spending will rise by 115 billion crowns, the Finance Ministry said, while tax revenue will rise by 65 billion crowns amid inflation.

Finance Minister Zbynek Stanjura said the amended budget was "a reality brought about by (Russian President Vladimir) Putin's war in Ukraine."

Fiala's centre-right government took power last December after ousting the previous government, which it blamed for fast-rising debt and deficits from the COVID pandemic and promises of faster-than-usual state wage and pension hikes, along with a record income tax cut.

It immediately set to cut around 100 billion crowns from the budget deficit it inherited, and Fiala said on Wednesday the new deficit target was still 50 billion below the previous government's plan.

"We are not happy with raising the state budget deficit," Fiala said. "The government is in no case resigning itself from budget responsibility."

The budget gap hit a record 420 billion crowns in 2021, pushing the overall fiscal gap to 5.9% of gross domestic product. The government aims to return the gap to below 3% of GDP, which is the limit under EU rules, by 2025.

The government had aimed to cut the gap to 4.5% of GDP under its original plan. It did not provide a percentage for the new plan.

($1 = 24.2350 Czech crowns)

(Reporting by Jason Hovet; Editing by Jan Harvey, Mark Potter and Angus MacSwan)

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