SEV endorses effort to contain spending

Greece’s top employers’ organization yesterday gave a qualified endorsement of the government’s efforts to dampen the rise in public expenses in the 2002 draft budget, unveiled on Wednesday. Dealing with the problem of the aging population and the impact on public finances of the social security problem requires the creation of fiscal surpluses through restricting public expenses. The progress envisaged in this direction in the 2002 budget is limited. We must, nevertheless, recognize, that it is in progress, said the Federation of Greek Industries (SEV) in a press release. Net primary expenses in the budget for 2002 are seen as rising 5.4 percent, against 7.4 percent this year, resulting in a slight decline in their share in GDP, from 20.1 percent to 19.8 percent. The period of uncertainty, which the global economy has entered due to recession trends in several of its segments, requires the creation of room for maneuvering to face unpredictable developments. Such room may be created by limiting public consumption, said the press release. Consumption expenses are reduced by 0.8 percent in the 2002 draft budget. SEV recognized that the downward revision of the rate of growth of GDP in 2002 had a crucial effect on public revenues, whose rate of increase is expected to slow down by one percentage point in relation to 2001, thus hindering the formation of a surplus. This hinders the attainment of significant progress in terms of the primary surplus which plays an important role in reducing debt. Therefore, the primary surplus as a percentage of GDP is reduced from 5.3 percent in 2001 to 4.9 percent in 2002, said the press release. The envisaged surplus of the general budget is 1.16 billion euros, or 0.8 percent of GDP, which Economy and Finance Minister Nikos Christodoulakis said will be used for specific social and developmental purposes. SEV reiterated a standing call for separating progress toward reducing public debt from being tied to increases in revenues. Fiscal adjustment cannot be based on revenues, which depend on economic fluctuations. Success requires setting clear targets for revenues which must be sought irrespective of the situation as regards revenues. SEV also welcomed budget provisions for tax breaks to firms and individuals – pending an overhaul of the taxation system – and an increase in spending for social programs and in the education sector. Furthermore, it endorsed the forecast for average annual increases of 10 percent in the Public Investment Budget over the next three years (2002-2004), but stressed the need for optimizing investment which would lay the basis for sustainable economic growth. Labor Ministry’s 8.8-percent raise The overall increase in spending for pensions in the draft budget is 4.9 percent, against a forecast inflation rate of 2.7 percent. The draft budget blueprint also includes entries for the first installment toward settlement of the State’s huge 3.8-billion-euro debt to the Social Security Foundation (IKA). A further 275.8 million euros is to go toward meeting the staggering social security obligations of the Public Power Corporation to its employees, which have been shouldered by the State. As a whole, the Labor and Social Security Ministry’s budget for 2002 is 8.8-percent (or 338-million-euros) higher than this year’s, rising to 4.166 billion euros. This also includes 55.7 million euros for the workers’ voluntary lay-off scheme from Hellenic Shipyards – as part of its privatization deal – and a 48.8-million-euro grant to the State Employment Organization (OAED), representing a 168.8 percent increase from last year, in order to mostly meet the higher unemployment benefits. The 2002 budget includes a small increase in grants to social security funds and a 87.4-percent rise – or 206 million euros – in the State’s contributions as part of the trilateral funding system which also includes employers and employees. The seeming paradox is explained by the fact that significant amounts disbursed as grants during 2001 are now classified as state contributions. Thus, grants to IKA are reduced by 30.3 percent and by 18.4 percent to the fund for the self-employed (TEBE). The change in methodology is considered to reflect the government’s desire to depict more effectively the state contribution, thus facilitating the Labor and Social Security Ministry in its handling of negotiations with unions and employers on the pressing issue of social security reform. The overall 6.9-percent increase in grants (294.25 million euros) is almost entirely accounted for by the provisions for increases in farmers’ pensions (238 million euros) and the so-called Social Solidarity Supplement for Pensioners (58 million euros).

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