Measures won’t derail budget

Measures won’t derail budget

The government is trying to make the most of the fiscal flexibility the eurozone allows for due to the coronavirus, so in Thessaloniki it announced a series of tax breaks included in its election manifesto last year, some of them front-heavy too. However, those announcements remain within normal fiscal constraints and even secure a perfect fiscal balance for the 2021 budget, according to sources.

Three weeks before the submission of the 2021 draft budget, the plans of the Finance Ministry, in accordance with Prime Minister Kyriakos Mitsotakis’ announcements over the weekend, provide for this year’s budget to close with a primary deficit equal to 6% of gross domestic product, while the 2021 budget will have a near-zero or zero deficit. This is despite the total cost of 6.8 billion euros that the Mitsotakis announcements entail.

That is because a large share of those measures concern the expenditure of this year, therefore they will count toward the 6% primary deficit of 2020, while some of the measures do not bear any fiscal consequences. Therefore the additional burden on the 2020 budget from the new measures will come to just over €2 billion, plus a part of the extra spending on defense – which according to estimates will in the coming years total some €5 billion.

Government sources say that the measures announced serve two goals for Athens: They boost the economy via Keynesian-like interventions, while also promoting reforms that will contribute toward attracting investments and high-standard workers to Greece, hopefully reversing the brain drain.

In a newsletter to investors, Alex Patelis, the PM’s chief economic adviser, said that this is the right time for Athens to begin its structural policies. He noted that, as Project Syndicate and The Economist recently argued, the ample fiscal leeway and the monetary support need to be utilized smartly, not wasted on handouts and the expansion of the state into the private sector.

This, he concluded, is an opportunity for the government to apply its platform of measures, focusing on encouraging investments and the bolstering of salaried employment.

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