Latvia PM urges parliament to back budget despite govt tensions

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

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

"This is the first budget the government has prepared without close supervision from international donors, therefore representatives of the financial markets are watching whether Latvia will be able to follow fiscal discipline independently," Prime Minister Valdis Dombrovskis was quoted by Baltic news agency BNS as saying to parliament's finance committee.

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

"The budget will be a test for Latvia's political environment to see whether we do not make the same mistakes again," said Dombrovskis, whose Unity Party is the biggest coalition group along with the centrist Reform Party and the nationalist, right-wing National Alliance.

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

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

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

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

(Reporting by Aleks Tapinsh; Editing by Alison Williams)

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