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Latvia PM urges parliament to back budget despite govt tensions

RIGA, Oct 9 (Reuters) - Latvia's prime minister urgedparliament members on Tuesday to support next year'sdeficit-cutting budget despite tensions in the centre-rightcoalition over demands for additional spending.

The 2013 budget bill is aimed at cutting the deficit to 1.4percent of economic output, from an expected deficit of 1.9percent this year. But one of the coalition parties wants extrafunds to be spent on benefits to promote higher rates of birthin a country where the population has steadily dropped.

"This is the first budget the government has preparedwithout close supervision from international donors, thereforerepresentatives of the financial markets are watching whetherLatvia will be able to follow fiscal discipline independently,"Prime Minister Valdis Dombrovskis was quoted by Baltic newsagency BNS as saying to parliament's finance committee.

Latvia went through a tough diet of spending cuts and taxhikes supervised by the International Monetary Fund and theEuropean Commission during the 2008-09 financial crisis.

"The budget will be a test for Latvia's politicalenvironment to see whether we do not make the same mistakesagain," said Dombrovskis, whose Unity Party is the biggestcoalition group along with the centrist Reform Party and thenationalist, right-wing National Alliance.

Dombrovskis is committed to cutting income tax every yearfor the next three years, while also reducing the deficit.

The Baltic state posted economic growth of 5 percent in thesecond quarter, compared to the same quarter last year, thehighest in the European Union.

The National Alliance says it wants an additional 16 millionlats of spending to improve the demographic situation, whichwould upset the government's budget calculations.

The Alliance has said it could vote against the budget in asecond reading. Latvian laws say that if the budget is rejectedin parliament, the whole government has to resign.

(Reporting by Aleks Tapinsh; Editing by Alison Williams)

((aleks.tapinsh@thomsonreuters.com)(+371 27 78 36 50))

Keywords: LATVIA BUDGET/

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