* First reversal of major austerity policy since crisis began
* Decision may win public support for controversial reforms
* Restoring public perks could be worth 50-80 billion riyals
* Tax rises, fuel price hikes in coming months will offset that
* But non-oil sector growth likely to benefit this year
* Graphic of Saudi's slump http://bit.ly/2oyVauR
By Andrew Torchia
DUBAI, April 23 (Reuters) - The decision by Saudi Arabia's King Salman to restore cuts to financial allowances for civil servants and military personnel is being seen as helping the kingdom avoid recession this year while smoothing the path toward economic reforms.
Last September, the government sharply reduced financial perks for employees in the public sector, where most Saudis work, in one of its most drastic steps yet to curb a huge budget deficit caused by low oil prices.
On Saturday, Riyadh cancelled that step -- the first time it has reversed a major austerity policy since its budget crisis erupted two years ago. This followed widespread grumbling about stagnant living standards among ordinary Saudis.
Such perks include housing, vacation, and sickness allowances plus monthly bonuses for some state and military workers.
Analysts say the decision does not necessarily signal change in Riyadh's determination to eliminate its deficit. Instead, it may be a tactical move designed to help authorities implement a controversial economic reform programme announced last year by Deputy Crown Prince Mohammed bin Salman.
That programme includes steps such as new taxes, domestic fuel price hikes, the transfer of much of the burden of development projects to the private sector from the government, and the sale of a stake in national oil giant Saudi Aramco.
By showing it is sensitive to the public welfare and is looking for ways to share the financial benefits of reforms with society, the government may now be able to push ahead with its programme.
"The government was forced to take extreme measures last year. Now they are more at ease with the fiscal situation so they are able to give something back to society," said John Sfakianakis, director of the Gulf Research Centre in Riyadh.
"They aim to continue the reforms, and they want to do it with society's support."
CONSUMERS' POCKETS
Analysts have estimated that restoring the financial perks would put around 50 billion to 80 billion riyals ($13.3 billion to $21.3 billion) annually in consumers' pockets.
Finance Minister Mohammed al-Jadaan told Al Arabiya television that payments would start by the end of May, just before the holy month of Ramadan, when Saudis traditionally splurge on holiday items and travel.