Czech MPs approve plan to return church property

Under a plan agreed by the ruling parties and 17 religious groups led by the Catholic church, the government intends to give back most confiscated assets, mainly land and buildings worth some $4 billion (2.56 billion pounds), plus about $2.8 billion in cash compensation split into 30 annual payments.

The plan may cause a one-off jump in the budget deficit of 1.5 percent of gross domestic product, the central bank has assessed, because all future payments would be accounted for immediately.

Prime Minister Petr Necas's centre-right government has impressed investors with its steps to narrow the budget deficit and plans to overhaul the pension, health and welfare systems.

But it nearly collapsed over the church restitution plan, a highly divisive decision in an era of tax increases and spending cuts needed to narrow the budget deficit.

The return of church property had been planned since the bloodless 1989 "Velvet Revolution".

But it had until now never won enough political support in the largely atheist central European country. The leftist opposition strongly opposed the measure, also citing severe economic headwinds.

The plan is likely to be vetoed by the upper house, the Senate, which is dominated by leftists, but the lower house can overturn the veto later this year.

The Prague cabinet has been shaky since it took power in mid-2010, beset by a string of internal disputes caused by corruption scandals, personality clashes and the demands of individual parties.

But it has survived due to a lack of alternative government alliances and the ruling parties' concern that an early election would hand power to the opposition. ($1 = 20.7575 Czech crowns)

(Reporting by Jan Lopatka; Editing by Mark Heinrich)