Dramatic drop in budget revenues

By Prokopis Hatzinikolaou

Budget revenues were found to be lagging by a considerable 1 billion euros in the year?s first month, provisional January data compiled by the Finance Ministry showed on Tuesday.

Revenues posted a 7 percent decline compared with January 2011, while the target that had been set in the budget provided for an 8.9 percent annual increase.

Worse still, value-added tax receipts posted an 18.7 percent decrease last month from January 2011 as the economy continues to tread the path of recession: VAT receipts only amounted to 1.85 billion euros in January compared to 2.29 billion in the same month last year.

The VAT revenue data represent a particular worrying sign regarding the depth of recession for 2012, while even more painful measures are expected to lead to a reduction in salaries and therefore a further drop in consumption. This is the vicious cycle that the government will have to tackle by way of additional fiscal measures this summer.

According to the current data, the 2012 budget will certainly have to be revised soon, given that the original estimate for a contraction of 2.8 percent is now raised to 3.5-4 percent of gross domestic product.

Finance Ministry officials attribute the slump in VAT receipt figures to the major cash flow problems that enterprises are facing. Some of the latter are choosing not to pay for their VAT in order to plug other holes caused by liquidity problems.

At the same time the crisis is seriously hurting the competitiveness of Greece?s economy, resulting in a considerable drop in entrepreneurship. Finance Ministry data showed that some 111,000 companies shut down in 2011, against just 75,000 new businesses being set up. In fact the majority of new start-ups are not actual enterprises but newly self-employed professionals.

This is attributed to the dramatic fall in market turnover and the insecurity that entrepreneurs feel, dissuading them from getting engaged in the local business field.

The consequence of that is the reduction of state revenues from corporate tax.