VILNIUS (Reuters) - Center-left parties were set to win Lithuania's final round parliamentary election on Sunday thanks to voter anger over spending cuts, likely spelling the end for a conservative government praised abroad as a model of austerity.
Labour and the Social Democratic Party, which won 34 of 141 seats in a first round two weeks ago, have a good chance of winning enough of the 67 remaining seats up for grabs to form a coalition, according to analysts.
The two parties have promised to raise the minimum wage, shift the tax burden towards the better off and postpone the Baltic nation's adoption of the euro.
Prime Minister Andrius Kubilius, who says cuts to the budget deficit saved the former Soviet republic from bankruptcy, came third in the first round and has only a slim chance of retaining power.
After a collapse in economic output of 15 percent in 2009, the second-biggest decline in the European Union after northern neighbor Latvia, gross domestic product rose 6 percent last year and is expected to increase by about 3 percent this year.
But many voters say they have had enough of austerity.
"Everything needs to be changed, in the government now only one in 10 people really work, the rest just hang out there," said pensioner Edmundas, 73, who declined to give his full name.
The budget deficit fell to 5.5 percent of GDP in 2011 from 9.4 percent in 2009. The Kubilius government has drafted a 2013 budget with a 2.5 percent fiscal gap.
AMONG EUROPE'S POOREST
With a 13 percent jobless rate, Lithuania is one of the European Union's poorest countries and the population has fallen below 3 million for the first time since the Soviet Union's collapse in 1991 as thousands leave to find work.
Labour and the Social Democrats looked set to be able to form a coalition with the Paksas Party, led by an impeached former president, said Tomas Janeliunas, associate professor at the Institute of International Relations and Political Science.
"Even if the conservatives (led by Kubilius) and the liberals do better than in the first round, they are unlikely to get enough votes to continue in government," Janeliunas said.
The government's probable failure at the ballot box comes despite warm words abroad for a more resolute economic course than those taken by Greece and other euro zone states struggling with debt. The International Monetary Fund praised the government's "determined policy implementation" in June.
Social Democrat leader Algirdas Butkevicius, 54, a prospective prime minister, sounded confident after voting.
"We are going to win the second round ... and we are going to create a new ruling coalition in the parliament and maybe we will create the government in Lithuania," he told Reuters.
The Social Democrats want progressive income taxes to replace flat taxes.
In a sign of possible coalition tension ahead, Labour's leader, Russian-born businessman Victor Uspaskich, has said he may push for a budget deficit above the EU limit of 3 percent of output.[ID:nL5E8LE6ZU] Butkevicius has said he would be fiscally responsible and could seek euro entry in 2015. [ID:nL6E8L2DQJ]
However, Uspaskich says Lithuania should not rush to adopt the euro while the currency is in crisis and public support is low. The Labour leader is on trial for tax evasion by his party between 2004 and 2006, a charge he denies.
Lithuania's politicians were aware pressure from the markets would not allow them to be too generous, said Lars Christensen, chief emerging markets analyst at Danish bank Danske Bank.
"I'm quite happy that this election, no matter the outcome, will not lead to crazy economic policies," Christensen said.
Lithuania must borrow 7.6 billion litas ($2.85 billion) in 2013, about 7 percent of GDP, to refinance debt and to fund the deficit. "They have their hands tied at the moment," said DNB economist Rokas Bancevicius.
Lithuania takes the EU's rotating presidency in the second half of 2013 and must repay a 1 billion euro bond in March.
(Writing by Patrick Lannin; Editing by Andrew Osborn and Jason Webb)
