Two major uncertainties mark the preparation of the draft 2006 budget: the sustained upward rally of world oil prices and the substantial deviation from revenue targets. At a meeting yesterday, Economy and Finance Minister Giorgos Alogoskoufis, his deputy Petros Doukas and ministry officials and advisors agreed on some fundamental budget figures. Spending will increase by no more than 5 percent, as it is expected to do this year, and efforts will be made to make cuts, if possible. As for revenue, it is expected to grow at about 7.5 to 7.8 percent, but that will depend a lot on oil prices: an optimistic scenario sees revenue growth at 8.5 percent or more, while a more cautious alternative sees revenue at about 7 to 7.5 percent. One difficult next step for Alogoskoufis and his deputy will be the meetings with other ministers, scheduled for next week, in which they will be informed of the size of funds allocated to their ministries for next year. A participant at yesterday’s meeting said that most had made reasonable demands, but that the ministers of development, Dimitris Sioufas; health, Nikitas Kaklamanis; interior, Prokopis Pavlopoulos; and education, Marietta Yiannakou, had asked for big increases in funding. They are not expected to back off easily; indeed, Kaklamanis said publicly a few days ago that he would raise a fuss if he does not get the money he needs to improve «essential services» in the National Health System. The main constraint facing Alogoskoufis’s team is that the 2006 deficit must fall below 3 percent of Greece’s GDP. This is a commitment made to Greece’s partners in the European Union and one from which Greece cannot back off without risking a hefty fine and greater intervention, including strict timetables and mandated spending cuts. As for the current year, Economy Ministry officials say the deficit will end up below 4 percent of GDP, most likely around 3.6-3.7 percent of GDP. Revenue lag The government’s performance in meeting its revenue target this year has been catastrophic. Alogoskoufis believes the lag is due to extensive tax payment avoidance. In order to make up some of the lag, he has resorted to the methods the previous Socialist government used and which he and current Prime Minister Costas Karamanlis had vehemently criticized while in opposition. The securitization of past unpaid debts to the state is expected to raise extra revenue equal to 1 percent of GDP in both 2005 and 2006. The government will also use the method to rake in advance proceeds from the reintroduction, in the second half of 2006, of the scratch lottery. The securitization of the proceeds will allow the government to immediately take in 38 percent of the estimated lottery proceeds between 2006 and 2013. Government officials estimate that 2006 GDP growth will exceed 3.5 percent, allowing the budget deficit to slip to 2.8 percent of GDP. Without the securitization of overdue payments to the state, the deficit will be 3 percent of GDP. A more optimistic estimate puts growth at 4 percent, thanks to continued strong private consumption and an upswing in private investment. Stronger growth will also be helped by a rise in the eurozone’s growth, which will help boost exports. The government also hopes for extra revenue from privatization, while the investment boost will come as the result of lower corporate tax and the incentives offered in the so-called «development law» voted early this year, which, however, has not produced any significant results so far. Private consumption will be helped by continued credit growth which, contrary to Bank of Greece’s warnings, does not worry the government, since Greek household indebtedness as a percentage of GDP is still half the eurozone levels.