PM will enjoy budget figures

Budget data for the first seven months of 2005, announced yesterday, should make Prime Minister Costas Karamanlis confident about promising in his keynote economic policy speech in Thessaloniki on September 9 that the process of mild fiscal adjustment his government has followed in its 18 months in office will continue next year. It would be an important promise, meaning that the commitment made to Brussels for rehabilitating public finances can be achieved without new taxes and income cuts. Despite opposition protests and insistence that austerity is coming, and although economic rehabilitation is bound to remain the most serious problem for the government in coming years, it will nevertheless be a manageable problem and not one that threatens to overturn its policy. Success in bringing the public deficit below the EU-mandated ceiling of 3 percent of gross domestic product will end the regime of supervision for the Greek economy and will enable the government to proceed unfettered by the fiscal nightmare to implement its program of reforms and structural changes, for which it appears to enjoy broad popular support. The main piece of evidence which assures the government it will not need to impose new taxes is the data regarding public expenses in the January-July period. These rose only 2.5 percent, against an annual target of 4.9 percent. Even if there is an acceleration in coming months, expenses are certain not to exceed the target, thus largely offsetting the pressure from the shortfall in revenues, which were up only 3.7 percent, against an annual budget provision of 11.4 percent. To be sure, the unpleasant side of the taming of expenses is that it is largely due to cuts in the Public Investment Program, which is now projected to total 7 billion euros instead of 8 billion in the budget, because of the delayed absorption of European Union investment subsidies. In any case, the successful dampening of expenses and the securitization of non-collected revenues will likely bring this year’s budget deficit down to 3.6 percent of GDP, from over 6 percent in 2004. Maintaining the tidying momentum and the new, more effective electronic means of tracking down tax evasion announced last week make the lowering below 3 percent next year look very feasible indeed.

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