ECONOMY

Gaps left in the final 2016 budget draft

gaps-left-in-the-final-2016-budget-draft

Finance Minister Euclid Tsakalotos submitted in Parliament on Friday the final draft of the 2016 state budget, which contains gaps as regards some of the fiscal measures to be taken and a forecast for flatline growth for this year and a small recession next year.

The new budget includes new measures worth 4.2 billion euros for 2016, of which 2.2 billion concerns new taxes and 1.4 billion the social security system. However, 1.4 billion of the 4.2 billion remains unaccounted for, although it is clear that the 2016 budget is based mainly on hikes in taxes and social security contributions, putting even more pressure on households and corporations.

One of the gaps concerns pension system interventions put at 1.4 billion, as the source of some 645 million of that is not explained. Another 400-million-euro gap can be discerned in the social security system savings, which are estimated at 1.8 billion, but the measures included do not add up to that amount. There is also no clarification as to whether there will be any hike in employers’ contributions, a measure the government is examining to avoid part of the cuts to pensions.

Although there is a quantified analysis of the returns from the changes to income tax (some 300 million euros), it is unclear where the additional revenues will come from as the precise measures are not described. In practice, the social security and taxation interventions will be specified during future negotiations with the country’s creditors.

The good news concerns the estimates for the course of the economy: For 2015 the budget forecasts the economic contraction to come to zero against a -1.3 percent estimate in the first draft. This is thanks to the economy’s better-than-expected reaction to the the climate of uncertainty, the capital controls and the three-week bank holiday.

Gross domestic product is now anticipated to come to 175.6 billion euros this year, then decline to 174.4 billion in 2016 (i.e. a 0.7 percent contraction next year against a previous forecast for a 1.3 percent drop in GDP).

That improvement has reduced the need for extra measures. Without any significant changes to the fiscal targets, which are a 0.2 percent of GDP primary deficit for 2015 and a 0.53 percent primary surplus for 2016, the measures to be taken have been reduced by 647 million euros from the first draft. This reduction mostly concerns 2015 (492 million euros), as the fiscal adjustment of 2016 remains heavy.

The public debt this year will come to 316.5 billion euros, or 180.2 percent of GDP, and rise to 187.8 percent in 2016 (327.6 billion). The ministry has written in the budget that after the new debt settlement Greece will be able to return to the money markets in the second half of 2016.

The 2016 budget also foresees a decline in state consumption by 1 percent and in private consumption by 0.7 percent, a fresh 3.7 percent drop in investment after an 8.4 percent slide this year, an increase of 1.9 percent in exports and 0.6 percent in imports, and a decline in employment by 0.4 percent while the jobless rate will remain at 25.4 percent.

Households, corporations and farmers will have to pay additional taxes of 2.2 billion euros next year, including an extra 1 billion in asset taxes. Against the 2.86 billion euros anticipated from asset taxation this year, the ministry expects 3.78 billion euros, as on top of the Single Property Tax (ENFIA) it is probably calculating revenues from the legalization of incomes in Greece and abroad.

In income tax, households are expected to pay 150 million euros more, farmers will be burdened with another 88 million euros from the rise in tax rates, the increase in their tax deposit and the abolition of fuel tax rebates, while rented property owners must pay another 144.2 million euros.

The budget provides for the abolition of most tax exemptions next year from the total of 3.6 billion euros applying this year, while 2016 will also see the incorporation of the solidarity levy into the main income tax rate, fetching revenues of 314 million euros. The increase in various value-added tax rates will bring in an additional 1.3 billion euros, the ministry projects.

The extra levy on OPAP games of chance is seen generating revenues of some 210 million euros.

The budget’s net revenues will amount to 49.11 billion euros, up 489 million from the forecasts for 2015. Direct taxes will come to 20.02 billion, including some 920 million from the two remaining ENFIA installments for 2015 due in January and February 2016. Indirect taxes will fetch about 24.74 billion euros, up 1.1 billion from this year.

The budget further provides for a review of all state expenses so as to abolish any general government entities that are not necessary, as well as a full restructuring of the single salary system and special salaries.

Provisions include reductions of 268 million euros for salaries and pensions, 570 million for social security and healthcare, 561 million for operating expenses and 280 million euros for general government entities’ collateral. In contrast, the Public Investments Program will grow by 350 million euros to reach up to 6.75 billion.