By Martin Santa

BRATISLAVA, Oct 1 (Reuters) - The centre-right Slovakcabinet backed an ambitious fiscal consolidation plan inSeptember, which includes hikes in value-added and excise taxesand cuts in government spending.

The coalition only holds a narrow majority in parliament,but later this year is expected to push through the changes aswell the 2011 state budget, designed to slash the fiscal deficitto 4.9 percent of gross domestic product (GDP).

The euro zone member's unions objected to the 1.75 billioneuro austerity package and are expected to stage rare protestslater this month.

Clashes over taxes in the past weeks revealed differences ofopinion among the four government parties, but no major risks tothe stability of the cabinet itself.

Below are key political risks to watch.


The coalition, which took power in July, has had severalfights over policy, including opposition to tax hikes by theliberal SaS party, and personnel. Two deputy ministers from junior coalition parties have beenaccused of conflicts of interest, and Prime Minister IvetaRadicova has so far unsuccessfully demanded their resignation.

What to watch:

-- Worsening rows or dissent. The coalition's thinparliamentary support, at 79 out of 150 deputies, makes anydisruptions dangerous.


The government is facing union resistance against theapproved cuts in public spending and tax hikes.

Unions have announced a protest meeting in front of theparliament on Oct. 12, but Radicova has said she will not yieldand has put fiscal tightening in place as outlined.

The opposition, led by the leftist ex-Prime Minister RobertFico, accused the government of loading pensioners withadditional taxes and triggering a rise in consumer prices.

What to watch:

-- Attendance at union protests, which traditionally attractfew people, with the government blaming unions for bearing partof the responsibility for the poor state of public finances.

-- Tough fiscal policies, pension system adjustments andhigher taxes could damage the ruling coalition in regionalelections in November.


Slovakia's decision to torpedo a 816-million-euro bilateralloan to Greece, part of the euro zone's 110 billion euro aidpackage, sparked harsh criticism from Brussels and its EuropeanUnion fellows, raising the threat Bratislava could face somekind of political isolation in the future.

Several EU officials said privately that Slovaks could besnubbed by some of the 26 other EU member states because theirdecision is likely to complicate talks on the bloc's budget,making the rich net payers less willing to grant aid to poorercountries.

What to watch:

-- Coming months will show the impact, if any, fromBratislava's 'no' to the Greek loan, a violation of whatEuropean politicians see as the principle of solidarity.


The central European neighbours have a history of clashes,with Hungary accusing the Slovaks of oppressing its ethnic kinand Bratislava bristling at former imperial master Budapest'sefforts to promote Hungarian culture in Slovakia.

Radicova's coalition includes the Most-Hid party of mostlyethnic-Hungarians who are seen as a moderating influence on thefractious relationship between Bratislava and Budapest.

Relations between the two former communist states worsenedafter the previous prime minister Fico brought the rightistSlovak Nationalists, known for harsh rhetoric againstminorities, into his coalition following elections in 2006.

What to watch:

-- Radicova's cabinet on Sept. 24 softened a law thatstipulated that only the Slovak language could be used in publicby saying it only applied to public offices and by halving thefine. The parliament is expected to adopt the law in the comingweeks.

-- Bratislava also plans to amend a law which stripscitizens of their Slovak nationality if they take thecitizenship of another country.


The government wants to improve the business climate, crackdown on corruption and boost law enforcement -- major concernsfor investors under the previous leftist cabinet.

Transparency International's corruption perception indexshowed Slovakia fell to 56th place in 2009, down from 52nd theprevious year, worse than Central European neighbours Poland,Hungary and the Czech Republic.

What to watch:

-- Radicova's administration has pledged to increase thetransparency of public procurement projects, publish governmenttenders on the Internet and enhance the functioning of thecourts to reduce delays.

-- The government also plans to ease labour marketregulation, boost market flexibility to increase employment andlure new foreign direct investments. (Reporting by Martin Santa, Editing by Sonya Hepinstall)