(Adds government statement confirming cuts)
TALLINN, Feb 5 (Reuters) - The government of the small Baltic state of Estonia, facing an economic contraction that could reach 9 percent this year, decided on Thursday to slash spending by 8 billion kroons ($666.5 million).
Estonia, like its Baltic neighbors, has been hit hard by a recession that has left tax revenues tumbling.
"The government at today's meeting in principle approved a negative supplementary budget of approximately 8 billion kroons," it said in a statement.
"One of the biggest areas is a decrease of 10 percent for those people that get a salary from the state budget," the government added.
It said it would submit the bill to parliament on Feb. 19.
Prime Minister Andrus Ansip told a news conference that he could consider making the vote on the new budget a vote of confidence in the whole government, though no decision has been taken yet.
Estonia has said it wants to join the euro zone in 2011.
The slowing economy has taken the steam out of inflation, but meeting the fiscal goal in the Maastricht criteria of a maximum budget deficit of 3 percent of gross domestic product (GDP) is now the country's main challenge.
The central bank has said that gross domestic product (GDP) could in the worst case fall by 8.9 percent this year, though its main scenario was for a 5.5 percent contraction.
The coalition includes Ansip's Reform Party, the nationalist Pro Patria/Res Publica and the Social Democratic Party, to which Finance Minister Ivari Padar belongs.
The budget situation became so difficult in neighbouring Latvia that it had last year had to take a 7.5 billion euro ($9.61 billion) rescue from the IMF, the EU and other lenders. Estonia has said it has no need for IMF funds.
(Reporting by David Mardiste, writing by Patrick Lannin, Editing by Chizu Nomiyama)