Credit rating downgrade risk

International agencies warn that the government must do more to contain budget expenditure

The government’s new tax measures are inadequate for achieving a sustainable improvement of public finances, according to international rating agencies who threaten to downgrade Greece’s credit rating.

“The reform of the tax system does nothing to tackle the structural weaknesses of the budget, says Marko Mrsink, an analyst with Standard & Poor’s. “The budget drafting strategy has repeatedly missed out on measures for containing expenditure,” he added.

“The government has reestablished fiscal credibility but has made little progress in the area of spending. This year there has been a deterioration and expenditure figures are very big,” says Brian Coulton, a Fitch analyst. “To our surprise there has been no serious effort to deal with the extraordinary conditions of the current year and put things on the right track,” he explains, stressing that this was one of the reasons why his agency did not proceed with an upgrade of the Greek economy this year.

On the other hand, the president of the Greek-American Chamber of Commerce, Yiannos Grammenidis, said yesterday that the new measures are in the right direction.

Meanwhile, the Economy and Finance Ministry is seeking ways to further boost revenues, firstly by increasing the so-called “objective” property values which are used for official tax purposes. The decisions will be made by the end of the year, by which time the picture of the implementation of this year’s budget will be clearer, along with the needs of the next one. The Ministry has so far avoided saying precisely what will happen, with Minister Giorgos Alogoskoufis insisting that “what I have said so far still applies.”

Apart from a hike in “objective” property values, plans include a rise in taxes on tobacco and alcohol, although no specific decisions have yet been made.