By Antonio De la Jara

SANTIAGO, Sept 27 (Reuters) - The Chilean government is expected to propose this week one of its tightest budgets in two decades, as low prices for the country's main export copper and a weak economy have weighed on state coffers.

Finance Minister Rodrigo Valdes will announce on Thursday or Friday a public spending hike of 3 percent or less in 2017, lawmakers and economic analysts said. That would be the lowest annual increase since the late 1990s and compares to an expected 4.2 percent rise this year.

"The discussion is already closed. The minister told us it won't be above 3 percent," said Pablo Lorenzini, a lawmaker in Chile's governing coalition and member of the lower chamber's finance committee.

Center-left President Michelle Bachelet's ambitious reform program has been partly thwarted by a slide in the price of copper, subdued investment, poor legislative planning and opposition to elements of her reforms from both the right and left.

The budget is set to focus on some of the main demands of voters - education, health, and policing - but will likely still leave her core supporters and lawmakers disappointed. They want more generous public spending next year to counteract low business confidence and lagging investment.

They will also be mindful of voters going to the polls next year for Chile's presidential and parliamentary elections.

Earlier in September, the central bank predicted economic growth in 2017 to be between 1.75 percent and 2.75 percent, a small downward revision from previous forecasts.

The government's hands are partly tied by rules on fiscal discipline, used historically to maintain healthy finances and helping Chile to establish itself as one of Latin America's most stable economies.

Bachelet, a Socialist Party politician, started her term in March 2014 with a promise to reduce the structural deficit to zero by the time she leaves office. It currently stands at 1.4 percent to 1.6 percent.

The government has since abandoned that goal but has still repeatedly expressed its intention to reduce it by 0.25 percent annually. Lawmakers said this will not be changed.

"We can't be so pragmatic and pegged to the fiscal rule," complained Lorenzini, who belongs to the center-left Christian Democratic Party. "In this environment of business pessimism, it's not counter-cyclical enough. This budget lacks enthusiasm." (Reporting by Antonio de la Jara; Writing by Gram Slattery, Editing by Rosalba O'Brien; editing by Grant McCool)