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Czech parties agree higher 2020 spending, resolving coalition row

PRAGUE, Aug 23 (Reuters) – The Czech ruling parties on Friday neared a deal on a 2020 budget plan that will lift spending, though the finance ministry has said it still aims to keep the deficit target for next year unchanged.

The centre-left Social Democrats, junior partner in the minority coalition government, had rejected draft budget plans at the end of July, saying the ministries it runs were short of around 20 billion crowns in funds.

Finance Minister Alena Schillerova promised an increase of nearly 6 billion crowns ($257.60 million) over the original plan for the labour ministry, which is run by the Social Democrats, largely assuaging their concerns.

In all, the finance ministry has granted approval this month for 17.3 billion crowns in extra spending over the original draft plans, according to Reuters calculations.

Labour Minister Jana Malacova said on Friday the spending boost for her ministry was “the last piece of the puzzle” for a budget deal, although public sector wage increases still needed to be agreed.

The government aims to approve the budget plan around mid-September before it goes to the lower house of parliament, where it will need the support of the Communist Party as its votes give the ruling coalition a majority.

The finance ministry’s latest fiscal outlook shows the Czech Republic returning to a fiscal deficit of 0.2% of national output next year, which would be the first time since 2015.

The ministry sees the economy growing 2.3% next year, a touch slower than a 2.5% forecast for 2019, helped by rising wages and household spending even as key EU trade partners such as Germany slow sharply.

Schillerova, from the main ruling party ANO, has said the central state budget deficit will not top 40 billion crowns in 2020, the same as the 2019 target.

Her ministry said this week it was still revising budget revenue forecasts for 2020, which could help make up for the new spending limits.

The Czechs have been among the best budget performers in the European Union in recent years, posting overall fiscal surpluses once regional government budgets and healthcare spending are calculated.

But economists have criticised the government for being too generous in wage and pension increases and handouts while shortchanging needed investments and leaving little room for manoeuvre with the budget in an economic slowdown.

The agreement over ministries’ budgets is the second major hurdle the fragile Czech government cleared this week after a dispute over who would head the culture ministry – which pitted the Social Democrats against President Milos Zeman – was resolved. ($1 = 23.2920 Czech crowns) (Reporting by Jason Hovet and Robert Muller Editing by Gareth Jones)

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