Greek parliament approves austere budget for 2016

By Karolina Tagaris

ATHENS (Reuters) - The Greek parliament approved a 2016 budget featuring sharp cuts in spending and some tax increases to satisfy the country's international lenders at a time of growing austerity fatigue.

The leftist-led government of Prime Minister Alexis Tsipras is under pressure to deliver tangible benefits to its poorest citizens after having signed to a third rescue package from euro zone governments in August worth up to 86 billion euros.

The budget makes 5.7 billion euros ($6.2 billion) in public spending cuts including 1.8 billion from pensions and 500 million from defence. The savings are greater than this year's 1.5 billion euros. It also included tax increases of just over 2 billion euros.

It was passed by 153 votes to 145 with two members absent.

"This budget is a difficult task for a government that wants to leave its mark with social justice," Tsipras told lawmakers just before the vote.

He stressed that for the first time in five years, spending on hospitals, social welfare and job creation was being increased modestly within the bailout's constraints.

Tsipras said that was possible because his government had secured greater fiscal space by reducing its primary budget surplus target before debt service to 0.5 percent of gross domestic product in tough negotiations with the creditors.

The budget will have a deficit of 2.1 percent of GDP next year compared with 0.2 percent this year.

Tsipras' coalition majority fell to three last month after two lawmakers rebelled against a set of reforms demanded by the lenders, raising questions about his ability to push through a more ambitious long-term reform of the country's complex, underfunded pension system next month.

Representatives of the euro zone, the European Central Bank and the International Monetary Fund return to Greece on Monday for more talks about pending reforms of the pension and tax systems and public administration.

Having recapitalised the countries' four systemic banks at less expense to the taxpayer than expected, the government aims to complete a first review of the latest bailout programme in February in order to open promised talks on long-term debt relief from euro zone governments.

For the centre-right opposition, interim New Democracy party leader Yiannis Plakiotakis said: "Syriza's first national budget proves that what they have been saying about social sensitivity is just a myth. The budget shows that 2016 will be much worse than 2015."

($1 = 0.9187 euros)

(Additional reporting by Lefteris Karagiannopoulou; Editing by Paul Taylor)