ECONOMY

Cushion for emergency spending, balancing 2021 budget given priority

cushion-for-emergency-spending-balancing-2021-budget-given-priority

Torn between its intent to implement its stated goal to lower taxes and make Greece more business-friendly and the desire to show its European partners that it is fiscally responsible, the government has decided that any cuts in taxes and social security contributions will be temporary and not permanent.

Kathimerini has been informed that the Finance Ministry’s goal is to draft a 2021 budget with a balanced primary result: that is, expenditure on everything except interest on the country’s debt must match revenue.

Ministry officials now believe that the primary budget deficit will reach 6% of the country’s gross domestic product (GDP), higher than any previous estimates, and certainly far from the draft budget’s goal of a 3.6% primary surplus, stated months before the outbreak of the pandemic. Balancing primary expenditure and revenue is the goal, but should the pandemic take a turn for the worse, additional expenditure and a new primary deficit may be inevitable.

Prime Minister Kyriakos Mitsotakis will announce next year’s economic policy on September 12, at the customary speech given by heads of government annually on the grounds of the Thessaloniki International Fair. The trade fair itself has been cancelled and Mitsotakis will speak in front of a limited audience.

At the Finance Ministry, officials are busy planning for the prime minister’s speech. The plans remain fluid: sources say that the government’s stated promise to cut social security contributions and gradually eliminate the “social solidarity tax” that benefitted low incomes but has drained the middle class, will likely be implemented, but nothing is certain yet.

The need to provide a cushion in case more emergency spending is needed in 2021 will necessarily limit the scope of tax reform, ministry officials say.

The Eurogroup meeting of September 11 in Berlin will discuss the suspension of the EU’s fiscal rules in 2021 and likely conclude in favor. But everything is still up in the air for 2022.