The decision not to provide a special heating subsidy for low-income households was taken only a few hours before Prime Minister Costas Karamanlis’s Sunday press conference at the Thessaloniki International Fair, Economy and Finance Minister Giorgos Alogoskoufis told reporters yesterday. Faced with a commitment to lower the 2006 budget deficit below 3 percent of the country’s GDP and his government’s failure to attain its revenue target, Karamanlis decided to change tack from making super-populist promises to everybody and at least acknowledge the need for substantial economic reform. The government’s spin doctors and their media allies have portrayed this about-turn as the mature stance of a refreshingly candid leader who dares to become unpopular. However, this change of tack caught even well-known proponents of fiscal austerity, such as his own finance minister, Alogoskoufis, unaware. As late as last week, Alogoskoufis had publicly declared that spending cuts from other ministries would enable the creation of a fund through which the poorer households would be supported in order to face up to steeply higher heating oil prices. Having been contradicted by the prime minister himself, Alogoskoufis could do little else but toe the line: He declared that there is no room for more spending cuts and, therefore, no opportunity for a subsidy. He also made it clear that the government would not raise taxes in order to finance such a subsidy. «You cannot make social policy with borrowed money,» he said. In any case, the government has borrowed record sums of money this year to cover for the deficit and the gap between projected and annual revenue. Alogoskoufis also denied that there was either a rift between himself and Development Minister Dimitris Sioufas, or a lack of coordination among the ministries, on the subject of the fuel subsidy. He said that cooperation is good and the level of coordination high. Alogoskoufis told reporters that European Economic and Monetary Affairs Commissioner Joaquin Almunia will visit Athens on October 5, presumably to check on progress on the fiscal front. After letting the 2004 budget deficit balloon to over 6 percent of GDP, partly by rearranging the accounting rules in order to blacken its predecessor’s record, the government had been given two years by the EU to lower the deficit below 3 percent of GDP. At one point, given the lag in revenue, there were fears the 2005 deficit would approach 5 percent of GDP; Alogoskoufis himself said he hoped for a deficit below 4 percent. Yesterday, he predicted the 2005 deficit will range between 3.6 percent and 3.7 percent of GDP. There has been some extra revenue from the privatization program, where the government has already exceeded its target by some 500 million and could top that if it decides to sell a stake in ATE Bank (formerly the Agricultural Bank of Greece) before the end of the year. Alogoskoufis also said that the economy would grow 3.6 percent in 2005, slower than the 3.9 percent estimate included in the 2005 budget but higher than more recent forecasts. On income tax cuts, Alogoskoufis said these will kick in in 2007. Corporate taxes are already being sliced.