UPDATE 2-Algeria govt approves big rise in public spending
* Draft budget law increases spending by 25 percent
* Customs duties waived on imports of sugar, cooking oil
* Govt trying to head off an Egypt-style revolt
ALGIERS, May 2 (Reuters) - Algeria announced a sharp increase in budget spending and waived duties on staple foods on Monday in a move designed to stop public discontent spilling over into the kind of revolts rocking other Arab states.
Algeria, one of the European Union's biggest suppliers of natural gas, has been trying to head off an Egypt-style uprising by using its cash reserves to soothe grievances and by offering cautious political reforms.
At a cabinet meeting chaired by President Abdelaziz Bouteflika, the government approved amendments to the 2011 budget which would increase public spending by 25 percent, according to a government communique.
The extra spending would be concentrated on pay increases for public sector workers, higher state subsidies on flour, milk, cooking oil and sugar, creating work for young unemployed people and building new houses.
All these have been the focus of discontent among Algerians and have led to protests and riots in the past few months -- though none has so far coalesced into the kind of national movement that could challenge the government's hold on power.
"This draft (budget law) is, in particular, aimed at ... preserving the purchasing power of citizens, meeting the demand for jobs for young people and better promoting the development of a productive economy," said the government communique, which was carried by the state-run APS news agency.
The budget measures are contained in a draft supplementary budget for 2011 that was approved by the cabinet. It still needs to be approved by parliament, but this is usually a formality because Bouteflika allies have a majority.
The draft supplementary budget law also waived value added tax (VAT) and customs tariffs on imports of cooking oil and raw and white sugar.
In January, after sharp rises in food prices sparked riots around the country, the government suspended customs duties and VAT on sugar imports until Aug. 31. The budget law will extend the waiver until the end of the year.
Bouteflika gave some details on Friday of a plan he announced last month for political reforms -- a concession to calls for change that have been gathering momentum since the uprisings in Egypt and neighbouring Tunisia.
The 74-year-old president said in a speech on April 15 that he would ensure freer elections, amend the constitution and end the jailing of journalists.
In a statement released after the cabinet meeting, he said he was asking the head of the upper house of parliament, Abdelkader Bensalah, to lead consultations with political parties and civil society about the planned reforms.
Bouteflika said the proposed political changes should be ready for submission to parliament later this year, but the constitutional changes would not be submitted until after the next parliamentary election, due in May 2012.
Bouteflika did not specify what political reforms he was proposing or how the constitution would be changed. His critics say his reform plan is too vague and that if he is serious about change he should start by dismissing his government. (Writing by Christian Lowe; Editing by Tim Pearce)