The 2020 budget will have to produce a primary surplus overrun of more than 2 billion euros just for the repetition of the measures the outgoing government has voted in over the last few weeks for 2019. If one adds the bill for the election pledges of the two main parties for next year, the cost jumps over 4 billion euros.
All this means that the 2020 primary budget surplus will have to reach 5.5 percent of gross domestic product. The next finance minister will have a hard time trying to convince the country’s creditors, who already dispute that Greece can achieve this year’s primary surplus target.
The execution of this year’s budget will be the basis for discussion with the creditors’ mission after the election. For now, the European Commission argues there is no large excess in the primary surplus of 2019, and has downwardly revised its estimate to 3.6 percent of GDP from Athens’ 4.1 percent.
Consequently, Brussels does not believe that the primary surplus can cover the 2019 measures, such as the handout to pensioners that the outgoing government has dubbed the “13th pension,” and the value-added tax cuts. It has even raised additional concerns over the fiscal impact resulting from the arrangement of expired debts.
There is an additional factor that will be on the negotiating table: GDP. For now, the growth target of 2.3 percent in 2019 does not look attainable, as in January-March it came to just 1.3 percent. If the shortfall continues in the second quarter, negative repercussions on state revenue should also be projected.
On top of that, the government of outgoing Prime Minister Alexis Tsipras has already piled measures with a total fiscal cost of 3.566 billion euros onto next year’s budget, after passing the regulation that cancels the tax-free discount reduction.
That cost will be partly covered by the government’s scrapping of the growth-friendly measures (known as countermeasures), i.e. the 30 percent cut in the Single Property Tax (ENFIA), the slashing of the lowest income tax rate from 22 to 20 percent, and the reduction of the solidarity levy.