Court verdicts pose fiscal nightmare

Court verdicts pose fiscal nightmare

The state budget is facing a growing threat from court decisions reversing austerity cuts introduced as part of the bailout program.

The latest development on this front was the verdict this week by a section of the Council of State that deemed unconstitutional the abolition of the Christmas, Easter and summer bonuses for pensioners and civil servants which came into force in 2012.

According to the first calculations made ahead of the likely ratification of the verdict by the plenary of the country’s highest administrative court, the cost to the budget will amount to at least 800 million euros per annum. This is almost equivalent to the fiscal interventions for 2019 aimed at easing the pressure on taxpayers and amounting to 910 million euros. They include the housing benefit and the reduction to the Single Property Tax (ENFIA), among others, which are meant to have a permanent character.

Therefore, in order to meet the target for a primary surplus of 3.5 percent of gross domestic product, if the bonuses are to be returned, the fiscal interventions will have to be left out, unless the government intends to introduce a fresh tax hike. After all, this is precisely what the European Commission demanded in the first post-bailout report, referring to the need for offsetting measures in case the court decisions increase the pressure on the budget.

Moreover, the retroactive payment due will depend on the year from which the bonuses will be deemed due, as the state will have to disburse 2.4 billion euros if it is ordered to pay out the bonuses dating back to 2015, and 4.8 billion if it has to cover the entire period from 2012 to date. Of course these amounts would apply if all civil servants and pensioners are found to be owed the bonuses, and not just those who have sought legal action. Each recipient will be retroactively due 1,000 euros per year, or up to 6,000 euros in total.

Another headache for the Finance Ministry concerns a possible decision to overturn pension cuts imposed in 2012, as the cost of that could rise to 9 or even 12 billion euros.

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