ECONOMY

Third and final 06 budget draft sets no new taxes

The 2006 draft budget was finalized yesterday, the government announced, promising it contains no new taxes. This third draft maintains the main goal: a deficit below 3 percent of Greece’s GDP without compromising the economy’s high growth rate. Growth will be maintained through the introduction of public-private partnerships, reform of the labor market, resolution of bank employee funds’ huge deficits and the restructuring of Finance Ministry divisions, leading to more efficient revenue collection. The draft budget will be submitted to Parliament on Monday but has already ignited controversy and mutual accusations between the government and the main opposition Socialists. The final draft, approved yesterday by Prime Minister Costas Karamanlis, does not contain the controversial securitization of debt owed to the state. The government had hoped to raise some 3.5 billion euros from the operation in both 2005 and 2006. Now, it will have to tap other revenue sources. Officials at the Ministry of Economy and Finance insisted yesterday that the 2006 budget deficit will be below 3 percent of GDP, down from an estimated 4.4 percent in 2005 and 6.6 percent in 2004. This will be accomplished through tightened spending and a crackdown in tax evasion. This year’s experience demonstrates that reducing state expenditure is not easy, since the great bulk involves highly inelastic items, such as debt servicing, wages and other state services. Of the 40.58 billion euros allocated to primary spending, that is, everything except debt servicing, 19.64 billion will be used to pay wages and pensions, 8.5 billion will be spent on social security and health and 8.38 billion on operational spending. Realistically, only the latter category can be subject to cuts. At the beginning of 2006, Greece’s economy will be scrutinized by the European Council of Finance Ministers (Ecofin) which will assess the government’s progress report. Economy and Finance Minister Giorgos Alogoskoufis says he will obtain revenues upwards of 1.6 billion from privatizations, which will include the divestment of state holdings in the financial sector.