UPDATE 1-Austria says 2014 deficit won't exceed 3 pct despite Hypo - finance minister

VIENNA, April 8 Tue Apr 8, 2014 6:08am EDT

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VIENNA, April 8 (Reuters) - Austria will limit its 2014 budget deficit to no more than 3 percent of gross domestic product (GDP) despite a renewed hit from ailing state lender Hypo Alpe Adria, Finance Minister Michael Spindelegger said on Tuesday.

Austria plans to set up a "bad bank" to wind down Hypo assets, boosting state debt to around 80 percent of GDP and raising the budget deficit close to the 3 percent ceiling allowed under the EU's Maastricht criteria.

Hypo, which has already received 4.8 billion euros in state aid, said last month it needed 1.43 billion more to cope with writedowns and maintain minimum capital levels until it transfers assets to the bad bank in September.

Spindelegger said the government would exercise tight budget discipline to help cushion some of the Hypo blow.

"We cannot get to a Maastricht deficit above 3 percent under these conditions, and overall we cannot depart from the path the government has followed for years - to get better every year on the deficit," he told reporters after a cabinet meeting.

He gave no details before presenting draft budgets for both 2014 and 2015 on April 29. The coalition that took office in December has operated so far under a stopgap 2014 budget.

Austria's 2013 state budget deficit narrowed to 1.5 percent of GDP under Maastricht criteria as rising tax revenue and income from a mobile frequency auction offset aid to struggling banks. State debt edged up by 0.1 point to 74.5 percent of GDP.

The government aims to eliminate by 2016 the structural budget deficit, which strips out one-off items. (Reporting by Michael Shields; Editing by Hugh Lawson)

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