Next year’s budget will be difficult to balance

Electoral campaign needs are likely to drive expenditure way up

By D.G. Papadocostopoulos - Kathimerini

Economy and Finance Minister Nikos Christodoulakis will preside over the first meeting of officials for the 2004 budget in the middle of next week.

The new budget will be marked by the upcoming national elections, which must take place by May 2004, at the latest. As such, it will have to incorporate part of the so-called “Social Convergence Charter” which Prime Minister Costas Simitis will unveil in the fall and which is expected to contain several measures favoring low-income earners.

The new pay scale for civil servants agreed upon last week and the family bonus, which the government is obliged, after a court decision, to pay to both spouses if they are both civil servants, will make it even more difficult for Christodoulakis to balance the budget, as both represent significant outlays. Concerning the family bonus, the government delayed having to pay it for a long time and now must pay arrears, as well. It is estimated that the new pay scale will add 160 million euros to the budget’s expenditure column, while the family bonus will add another 400 million.

Sources at the General Accounting Office say it will be very difficult to design a budget that will conform to Greece’s restrictions under the European Union’s Stability and Growth Pact. Even though the margin for pre-electoral largesse is virtually non-existent, it is obvious that the electoral campaign will produce promises that will have to be fulfilled, sooner or later.

In theory, Christodoulakis appears to be against any deviation from a tight fiscal policy. In practice, we are witnessing a repetition of the 2000 budget, the last pre-election one, and it is evident that priority No. 1 for the government is its re-election.

According to preliminary drafts, the 2004 budget calls for a 5.5 percent increase in revenue, compared to the 2003 budget’s 5.1 percent target. Expenditures will rise by 6 percent, compared to a 5.6 percent rise this year, and nominal gross domestic product (GDP), that is, before accounting for inflation, will rise 7.5 percent.

The budget deficit is expected to be limited to 0.9 percent of GDP from 1.2 to 1.5 percent this year.

In drawing up the new budget, Christodoulakis and his aides must take into account the deviation from the previous budget’s targets. According to the most recent data published by the ministry, which concern the first five months of the year, the deficit went up 75 percent to 6.7 billion euros, from 3.8 billion in the same period in 2002. Even though the ministry is putting on a brave face, saying things will be better in the remaining months, there is a widespread fear of big spending overruns.

These first five months of the year, spending rose 12.3 percent, more than double the 5.1 percent target. Revenues rose just 2.8 percent, against a target of 5.6 percent, a sign that taxpayers can carry very little additional burden.

Revenues for the Public Investment Program have plunged to 613 million euros against 1.9 billion last year, a 68 percent decline.