Friday March 6, 2015 Search
Weather | Athens
20o C
11o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Options for primary surplus handouts

 Government must balance needs for this year’s budget targets with impact on growth and political gains

By Dimitris Kontogiannis

The Greek government has the right to distribute a good chunk of last year’s larger-than-expected primary budget surplus for economic and political reasons. However, it is important that the so-called “social dividend” contributes to achieving the 2014 fiscal target by maximizing the impact on the economy.

The Greek economy may be at a turning point. After underperforming in the past few years it may be able to do better than expected under certain conditions and we may already be seeing signs of improvement.

The contraction of economic activity turned out to be smaller than initially projected, at 3.85 percent year-on-year from an initial 4.4 percent, but the most pleasant surprise came on the fiscal front. The general government posted a primary surplus last year in excess of 1 billion euros and even more than 1.5 billion if one-off items are included.

Eurostat will release the final figure in late April. If it confirms that revenues exceeded state spending, excluding interest paid on public debt – known as primary expenditures – the government will have the right to distribute up to 70 percent of the surplus to social groups of its choice. This is because the revised official projection for 2013 called for revenues to be equal to primary expenditures and there is an agreement with lenders that 70 percent of any surplus exceeding the official projections can be distributed, with the other 30 percent retained to service the country’s huge public debt.

The coalition government is eager to have some money to give out before the elections for the European Parliament in May to maximize political gains. It believes that this would also boost its argument that the economy is turning a corner and help boost economic sentiment, speeding up the return to recovery. Prime Minister Antonis Samaras has already pledged to distribute the so-called “social dividend” to people with small pensions and to armed forces and police personnel who have seen their salaries slashed, and it is almost impossible to go back on that promise now.

However, it is also important that this year’s primary surplus target, set at 1.5 percent of GDP, is met so that the government does not have to take additional restrictive measures in the second half of the year. So, any distribution of last year’s surplus will have ensure that it maximizes economic benefits and at the same time addresses social needs and produces political gains for the government. Also, if the money is distributed in such as way as to help boost the economy, the state will be able to collect more in taxes and meet the 2014 fiscal target, allowing some leeway for 2015.

According to local media reports, the troika has suggested that part of the surplus be channeled to pay public sector arrears to third parties. It argues that this enhance growth, though more than anything else, it is prudent public finance management. Whether it will be growth enhancing or not depends on the use of the money by the private sector parties. If they decide to save the money, there will be no effect on economic activity. On the other hand, if they decide to invest the money, there will be a greater effect on the economy through the multiplier process. In addition, the companies that benefit may decide to repay their bank loans, in which case the effect on output would lie somewhere in between the two previous cases. Of course, there would be little to gain on a political level from the settlement of public sector arrears.

That said, the political and economic gains from the two other options being pondered by the government are not quite clear either. There is indeed a consensus that people on small pensions should be helped out on social and economic grounds. Most of them are vulnerable and a great deal of the money will be returned to the economy via the higher consumption of basic goods and services with a multiplying effect on economic output. On the other hand, if the amount per pensioner is small, it may not be politically as effective as the government hopes.

The case for distributing part of the primary surplus to uniformed officers is even weaker. It is interesting that even the conservatives are not pleased, arguing that uniformed officers are better off than many others in society because they are paid according to the special public sector wage structure and enjoy other fringe benefits and job security. Retired army and police officers will also benefit as their pensions are pegged on these wages, making this option more politically attractive. It is likely a good deal of this money will be saved, limiting the impact on the economy.

Moreover, we must take into account a court decision leaked court in January, which has yet to get clearly written, and calls for returning the salaries of uniformed officers to levels prior to the 2012 pay cuts. This decision reportedly applies retroactively to the 2012-2013 period. Also, there is another court decision exempting judges from any pay cuts. The fiscal impact of these decisions cannot be ignored when making plans to distribute the 2013 surplus.

All-in-all, the distribution of last year’s primary surplus should not ignore the need to meet the 2014 fiscal target without implementing additional austerity measures. This will be easier to achieve if the emphasis is placed on the economic impact of the distribution, though it does not mean that the social and political impact of any given decision should not be taken into account as well.

ekathimerini.com , Sunday March 16, 2014 (21:50)  
Jobless rate starts picking up again
Election lifted consumers’ mood
ECB decisions may prove to be a blessing in disguise
Market sees gov’t yielding after pressure
PM, FinMin in diplomatic push to sell measures
Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis are launching a diplomatic offensive, with calls to several European counterparts, in a bid to lay the groundwork for anot...
Police seeking missing student to recall key witnesses
Police in Ioannina, northwestern Greece, are to conduct a new round of interviews with students at the city’s Dairy School and other acquaintances of missing student Vangelis Giakoumakis in ...
Inside News
SOCCER
Greece need to attack more, new coach Markarian says
Greece coach Sergio Markarian said Thursday he wanted Greece to play more attacking football against Hungary in a Euro 2016 qualifier on March 29 as his side strive to move off the bottom po...
SOCCER
Super League restarts, but behind closed doors
Deputy Minister for Sports Stavros Kontonis announced on Wednesday the resumption of the Super League this weekend after it was suspended last week following crowd trouble at the Athens derb...
Inside Sports
COMMENTARY
PISA, Schengen, mediocrity and isolation
Greece’s most serious problem is not the economic and political crisis, though it did contribute greatly to it. At the root of our evil lies our great isolation, not only from our partners i...
COMMENTARY
Greek-Turkish relations
There are other issues beyond those focusing on the economy that the government, formerly of the “Indignants” and currently adapting – willingly or unwillingly – to eurozone realities, is fa...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. PM, FinMin in diplomatic push to sell measures
2. Jobless rate starts picking up again
3. Police seeking missing student to recall key witnesses
4. Election lifted consumers’ mood
5. State will keep paying priests´ salaries, Greek gov´t says
6. ECB decisions may prove to be a blessing in disguise
more news
Today
This Week
1. Greek-Turkish relations
2. Greece seeks to plug its 'Bermuda Triangle' of lost taxes
3. Greece struggles to make debt math work amid bailout standoff
4. Greece has backup plan if March bailout cash fails to arrive, says Varoufakis
5. Draghi details sought as ECB's QE plan poised to be fleshed out
6. Government policy
Today
This Week
1. Greece to make international protest over Turkey reserving Aegean air space
2. SYRIZA feeling the pain
3. The Greek tax drama
4. Varoufakis to make six reform proposals at Monday's Eurogroup
5. The unlikely winners of Greece's surrender on euro
6. Tsipras reversal draws Greek sympathy as party rumblings rise
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2015, H KAΘHMEPINH All Rights Reserved.