The first draft of the 2019 state budget tabled in Parliament on Monday by the Finance Ministry was based two alternative scenarios – one with the planned pension cuts along with offsetting measures, and one without them, apparently trying both to appease its creditors and please its voters.
The decision on the burning issue of the reduction of pensions by 1 percent of gross domestic product as of January 1, 2019 will be made in December by the Eurogroup of eurozone finance ministers, but the ministry spells out the government’s intention to avoid the cuts. If the cuts are implemented, the ministry projects a primary surplus of 4.14 percent of GDP, otherwise revenues will exceed expenditure (not including debt interest) by 3.56 percent of GDP.
Greece’s creditors quickly voiced their satisfaction with the double scenario in the budget, indicating that they had largely expected it. European Stability Mechanism chief Klaus Regling commented that “it is good to have two scenarios and leave the decision to the institutions,” pointing to the Eurogroup. The latter’s head, Mario Centeno, said for the first time that the reduction of pensions is considered a fiscal measure and not structural. “We all know Greece’s fiscal condition is better than 18 months ago when this decision was made,” he said.
The budget also projects 2.1 percent economic growth this year, rising to 2.5 percent in 2019, and includes most of the announcements Prime Minister Alexis Tsipras made last month at the Thessaloniki International Fair.
Single Property Tax (ENFIA) revenues will fall 10 percent, the corporate tax rate will be reduced from 29 percent to 25 percent in the next four years (1 percentage point per annum), and there will be cuts to the social security contributions of the self-employed, freelance workers and farmers, as well as a decline in the dividend tax.
A major slowdown has also been recorded in investment growth this year, with a marginal annual rise of 0.8 percent against a provision for an 11 percent increase in the midterm fiscal plan for 2019-2022.