The Finance Ministry is searching for around 300 million euros in spending cuts to help seal an agreement with the country’s lenders and reduce the amount of revenue the government will have to raise from tax increases.
Representatives of Greece’s lenders are expected to start returning to Athens later this week with the aim of talks resuming on April 4. The government’s economic policy council met on Monday to discuss how to bridge the 1.8-billion-euro fiscal gap that stands in the way of the bailout review being completed.
It is believed that Athens and its creditors have agreed on around 1 billion euros of the 1.8 billion needed, which is the equivalent of 1 percent of gross domestic product. The lenders are said to have proposed a range of measures, including an increase in value-added tax on utility bills, to cover the remaining shortfall. However, the government has rejected this.
Instead it is looking at a range of different tax measures and spending cuts of 300 million euros to bridge the remaining gap. Currently, the Finance Ministry does not have specific areas of expenditure in mind for the reductions but officials are poring over the state budget to identify where cuts can be made.
To reach an accord with the quadriga of lenders, Greece has to come up with measures that will produce a total of 5.4 billion euros in savings by 2018. This is equal to 3 percent of GDP. The majority of this is due to come from tax increases. Changes to income tax and the solidarity levy are seen yielding 1.8 billion euros, while another 500 million euros is due from the proposed increase in rises in social security contributions. Given that another 1 billion euros in tax measures has been agreed with the creditors, this means that two-thirds of the savings are already due from the revenues side.
Greece’s lenders appear to have given up on the prospect of the government slashing defense spending by 350 million euros this year. Defense Minister Panos Kammenos is thought to have resisted this plan. Instead, the coalition will be expected to reduce its defense budget by 100 million euros in 2017 and another 400 million the year after.