* Cabinet approves 2010 budget draft as planned
* Fiscal gap 5.3 pct/GDP, savings package cuts shortfall
* Budget draft now moves to parliament
(Updates with exact figures, changes sourcing to govt)
By Jan Korselt
PRAGUE, Sept 29 (Reuters) - The Czech interim government approved a 2010 central state budget draft with a deficit of 162.7 billion crowns ($9.41 billion) on Tuesday, cutting its shortfall as it battles to get its economy back on track.
Enabled by parliamentary approval last week of a $4 billion package of tax hikes and spending cuts, the gap would put the overall public sector gap at 5.3 percent of gross domestic product, or 2.2 percentage points lower than without the legislative changes. [ID:nLP440303]
However, officials have warned the austerity would come at a cost, and Finance Minister Eduard Janota said on Tuesday the economy would contract 0.5 percent next year.
The interim Czech cabinet has battled to rein in the budget gap as the country's worst recession in a decade stunts revenue and raises welfare spending, while political parties wrangle before elections due sometime next year.
Approval of the package was a main sticking point to the budget, and Prime Minister Jan Fischer had threatened to quit if the savings package had not gained approval.
Analysts say the 2010 bill could speed through parliament with little opposition, although the changes failed to alter structural problems.
Central bankers, including Vice-Governor Mojmir Hampl, welcomed the savings package as a sign of responsibility and a proper response to the country's fast-growing fiscal gap despite the poor growth outlook. [ID:nLS346240]
The Czech economy is seen falling 4.3 percent this year while the budget gap will likely spiral past 5 percent of GDP, up from 1.5 percent last year.
Janota said the fiscal gap would stay above this point at 5.6 percent and 5.5 percent respectively in 2011 and 2012, once the austerity measures expire after a year.
"It is obvious that this confirms previous words about this (austerity) being a first step; that this step was just for 2010 and we need to look for a substantial solution, on both sides of the balance," Janota said.
Despite the high deficit, the Czechs still have lower debt than most countries in western and central Europe, at around 40 percent of gross domestic product, and are one of the only countries in the region pushing to cut the deficit without having its hand forced by the International Monetary Fund.
The country has an 'A' rating from Standard and Poor's, on par with euro zone member Slovakia and above Poland and Hungary.
(Writing by Jason Hovet; Editing by Stephen Nisbet)