Payment plans set to hurt budget

Payment plans set to hurt budget

The government’s new program for the payment of expired dues in up to 120 tranches has led to a reduction in the collection of taxpayers’ overdue arrears in the first five months of the year.

The drop in takings is highly likely to generate problems in the state budget, regarding which Greece’s creditors have already warned the government. For now the shortfall amounts to 95 million euros, while indications point to a further lag in the coming months when the tax administration will have detailed and qualitative data on the debtors who have entered the new repayment mechanism.

The latest figures show that 163,000 tax debtors have joined the new scheme, mostly individuals; they have arranged settlements for debts of 1.144 billion euros on which penalties and fines of 347 million euros have also been imposed, for a total of 1.492 billion due.

What authorities cannot yet assess is the amount the state can expect from the new mechanism, as the process will be unfolding until end-September. Rough estimates speak of no more than 200 million euros.

More debtors are expected to enter the mechanism in the next three months, taking the expected sum higher. However, it will be important to see what changes are introduced to the system’s parameters: Opinion poll leader New Democracy has already announced it will improve the new arrangement, reducing the interest rate from 5 to 3 percent; this might help debtors but will likely generate more problems for the budget.

In any case, the two mechanisms for the settlement of debts to the tax authorities and the social security funds constitute a major challenge for the next government. The creditors estimate that the 120-tranche settlements will create a fiscal gap equal to 0.6 percent of gross domestic product in this year’s budget, which poses a threat to the primary surplus target, which may drop below the 3.5 percent of GDP mark.

According to the creditors, the biggest problem is in the settlement of tax dues, where a gap of 600 million euros is projected, while the pension funds will see a hole of 300 million euros.

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