ECONOMY

Budget’s lofty goals

The main aim of the draft 2005 budget submitted yesterday by Economy and Finance Minister Giorgos Alogoskoufis is to keep the deficit below 3 percent, as promised recently to the council of EU finance ministers (Ecofin). Specifically, Alogoskoufis had vowed to reduce the deficit from an estimated 5.3 percent this year to 2.8 percent in 2005 and, at the same time, bring the revised debt down from 112.1 percent to 109.5 percent. The task is less daunting than it first appears, as an estimated 1.5 to 2 percent of the 2004 deficit is due to cost overruns for the preparation of the Olympic Games. If he succeeds, Alogoskoufis will also defuse the ire of our EU partners – partly of his own making – who are at present fuming over Greece’s submission of «false» accounts in previous years. Alogoskoufis’s overzealous shifting of expenditures was designed, of course, with a political goal in mind, namely to discredit the previous government and project an image of transparency and honesty. Should he succeed in driving down the deficit quickly, he will ensure that Greece avoids excessive pressure from its EU partners to make drastic spending cuts. His front-loading of defense expenditures will also provide a welcome boost for future budgets. The challenge for Alogoskoufis is to achieve his goals without resorting to excessively unpopular measures. He, like Prime Minister Costas Karamanlis, whose instructions he is faithfully executing, has declared that he does not believe in austerity programs but in gradual, more or less painless adjustments. To achieve them, he sets some ambitious goals in the budget, which, had they been presented by the previous government, he would have denounced as untenable. Alogoskoufis has set as targets a 4.8 percent rise in expenditure, to 47.57 billion euros, and a 7.2 rise in revenues, to 46.31 billion. In order to cap the expenditure rise at 4.8 percent, he expects to reduce the public sector’s operational costs by 6.6 percent and its public consumption expenses by a whopping 16.2 percent. This, on paper, may make sense, since expenditure on public sector wages will rise by 6.6 percent and spending on social security will rise by more than 14.5 percent, with subsidies for medical treatment of the insured rising 16.1 percent. Reducing consumption expenses – which, in this year, rose 17 percent – by almost a sixth is a very bold proposition, to say the least, though some of this year’s costs, such as the procurement of goods and equipment, were especially inflated due to the Games. On the revenue side, Alogoskoufis hopes that tax revenue will increase by about 3.2 billion euros, more than half of which – 1.69 billion – will come from the settlement of old tax cases. This year, however, the tax-collecting agencies, especially those, like the financial crimes squad (SDOE), which conducted inspections of businesses, all but collapsed following the victory of the conservatives in March. The new government had promised to abolish the present SDOE, labeled a nest of socialists bent on harassing businesses. When the need for additional revenues became dire, over the summer, there were repeated announcements that SDOE would be «re-mobilized» but revenue collection never actually recovered. Will it do so next year? And will businesses be willing to declare their revenues to the extent that Alogoskoufis would like? The opposition Socialists, stung by the fact that their image has been tarnished abroad by the conservatives, replied yesterday by imitating their opponents’ style while in opposition and declaring that the budget is a facade. Perhaps it is: that will become apparent mostly in its implementation next year. But they are not quite the innocents crying foul. When in government, they had indulged in quite a bit of creative accounting, drawing the attention of the EU even before their fall. At present, their protests are not being taken that seriously. Like the rest of us, they will have to wait and see if the government can actually implement its ambitious budget.