Public revenue growth falls short of budget target

Public revenue growth in the first four months of the year is causing concern for Greek ministers. Data released by the Finance Ministry’s General Accounting Office yesterday showed that the rate at which inflows are replenishing public coffers lagged considerably behind the annual target in the first four months of the year. Revenue collection in the January-April 2005 period grew only 2.6 percent, year-on-year, to 11.7 billion euros, against a budget target of 11.4 percent. The main causes of this development are thought to be the weakness of the tax inspection mechanism after last year’s general election and the higher tax breaks offered by the government, in which a 1 percent increase in value-added tax, from 18 to 19 percent, valid from April 1, proved too meager to offset. Public spending in the same period rose 4.7 percent year-on-year, against a target of 4.6 percent. Another worrying development was that interest payments on government debt increased by 9.8 percent to 4.148 billion euros, against an annual growth target of 3.5 percent. The picture of the annual trend as regards public spending is expected to become clearer after the year’s first half. Negative developments, combined with a low growth rate in gross domestic product (GDP), would add to the difficulties in reducing the deficit. Greece is aiming to shrink its budget deficit to 3.5 percent of GDP this year from 6.1 percent in 2004. It is counting on tighter public spending and privatization revenues projected at 1.6 billion euros. The picture as regards the Public Investment Budget remains disappointing. Spending in the January-April period was down 43.7 percent, year-on-year, to 1.34 billion euros. This sharp decline is mainly due to irregularities identified in European Union-subsidized public projects, which forced the European Commission to temporarily halt payments. Negotiations are under way on the issue and a favorable resolution would mean the reimbursement – in installments – of public coffers by about 800-900 million euros. A favorable resolution, however, is not considered at all certain.