Gov’t finds cause for joy

Extraordinary revenues send 2005 total above target but Ecofin battle awaits

Public revenues exceeded the government’s 2005 target of 5 percent growth by one percentage point, the Finance Ministry said yesterday.

The development — certainly a cause for celebration for ministers who must have remained doubtful of the efficacy of achieving the target throughout the year — is largely attributed to the surge in demand for new homes due to the application of value-added tax (VAT) as of January 1, which induced thousands of taxpayers to hasten to buy or transfer properties. Property transfer tax revenues shot up 20-25 percent. VAT, the main component of revenue, also performed well, surging 13.5 percent in December. The public coffers also received boosts from state royalties and dividends from such sources as games of chance and public utilities.

The government projects revenue growth of 7.9 percent in 2006, to 47.6 billion euros. The Finance Ministry is placing great hope on the efficiency of tax authorities, as, according to sources, the latest data shows that tax evasion is growing. Already, about 1 billion euros in fines has been collected from 1,450 taxpayers whose records were found to show a discrepancy in electronic cross-checking. The ministry estimates the fines will reach a total 20 million euros, but this is evidently a small sum compared to the budgeted total increase of 4.6 billion. Most of this is expected to come from sources such as income tax (743 million), extraordinary dividends and the transfer of state property rights (1.1 billion) and non-tax revenues (340 million). The rest is hoped to come from success at fighting tax evasion. Special fuel consumption taxes are also budgeted to rise by 343 million euros, or 13.7 percent, which, of course, bodes particularly ill for motorists.

Meanwhile, Greece is preparing to ask the European Union Economy and Finance Minister’s Council (Ecofin) at the end of the month for an extension of one year to the deadline for bringing its public deficit to below the mandatory 3 percent of gross domestic product (GDP).

2006 is the last of the two-year period initially given to Greece to bring the deficit under control, and which appears difficult to attain without abandoning the government’s much heralded “mild adjustment” approach.

The main Greek argument for an extension is that the initial two-year period was given on the basis of an initially estimated 5.4 percent deficit, but which subsequently swelled to 6.6 percent. Reports suggest that the request is likely to be granted, aided by both the improvement in public revenues and the high growth rate that has been maintained after the Olympic Games.