Worries over slow revenue growth

The government’s ambitious goal of reducing the budget deficit, for the first time, to levels acceptable by the European Union – that is, below 3 percent of Greece’s gross domestic product (GDP) – will succeed or founder on its ability to contain public spending. Each day, literally dozens of requests from various ministries for extra funding arrive at the State Accounting Office and Economy and Finance Minister Giorgos Alogoskoufis has the unenviable task of rejecting almost all of them. Today, Alogoskoufis will meet his deputy, Petros Doukas, to discuss the pay policy regarding civil servants, which is to be announced in the coming days. The two will also discuss ways to boost revenues, as revenue collection has become the government’s biggest headache. Economic ministers are especially concerned about how the budget will be implemented in the early months of the year, traditionally a time of revenue lags and spending overruns. During the first months of 2004, tax revenues were about 10 percent higher than during the same period in 2003. This year, the estimate is for a 7.8 percent increase, a target difficult to reach, given that last year’s achievement was based on booming business as preparations for the Olympics entered the final stretch. Deputy Economy and Finance Minister Adam Regouzas, the official responsible for raising revenues, is trying to boost influxes by using tactics such as cajoling the tax authorities into closing pending cases at a faster pace. He is also considering ways to crack down on VAT evasion, especially by importers and through illicit fuel trade. On a more positive note, spending seems to have been contained as compared to last year, when it shot up 17 percent in the first four months. This was partly due to the previous government’s decision to offer a generous pay rise, from 3.2 percent to 9.8 percent in salaries and up to 10 percent on pensions, and pay it right from the start of the year instead of in mid-year, retroactively. This year, the Economy and Finance Ministry will postpone pay rises until March, or later. The rise this year is also lower, ranging from between 3-3.8 percent. Thus, the government hopes, the lower rate of spending will make up for slow revenue growth. In order to keep spending under wraps, the State Accounting Office has imposed monthly spending limits on ministries, local authorities and other state-subsidized bodies. Any spending item over 3 million euros must be approved in advance by the office. Officials say that they will only be able to tell whether the budget will be implemented as planned after the first half of the year.

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