Fiscal revision issue resurfaces

An opinion by the European Union’s statistical service (Eurostat) yesterday that military spending must be listed in a country’s budget at the time of delivery of equipment and not before, rekindled the hotly contested issue between the government and opposition of Greece’s public finances in recent years. «Some military programs are based on the combination of several kinds of equipment that may be delivered at different periods, so that the expenditure may be spread over several fiscal years before the system, globally considered, becomes fully operational. In cases of long-term contracts where deliveries of identical items are staggered over a long period of time, or where payments cover the provision of both goods and services, government expenditures should be recorded at the time of the actual delivery of each independent part of the equipment, or of the provision of service,» Eurostat said. The issue of how military spending is properly entered into national accounts formed most of the battleground on economic policy with the main opposition PASOK party when the government decided to launch a revision of public finances after gaining power two years ago. The government accused its PASOK predecessors of concealing and manipulating expenditure data in order to present lower deficit figures. PASOK had insisted that its method of booking military expenditures was based on the logic of delivery. The revision resulted in Greece’s public deficit being upped from a projected 1.7 percent of gross domestic product (GDP) for 2004 by PASOK to 6.6 percent, causing the European Union to place the country’s public finances under supervision. Economy and Finance Minister Giorgos Alogoskoufis stuck to his guns yesterday, insisting that Eurostat’s decision does not cancel the revision and will not affect past fiscal data. «Far from canceling the revision, it strengthens it, as military spending must be registered – which the previous government did not do… PASOK systematically concealed military spending, relegating it to the future,» he said. For the 1997-2003 period, Alogoskoufis claimed, the revision had revealed «phantom» spending of nearly 8 billion euros. Former PASOK prime minister Costas Simitis reacted sharply. «New Democracy’s revision was wrong, there were no excessive deficits and its restrictive (fiscal) policy was based on a mistaken premise; it was libelous, thoughtless and imprudent,» he said. Former economy minister Yiannos Papantoniou said the Greeks have paid a heavy price for the government’s revision. Alogoskoufis said that any changes as a result of Eurostat’s announcement in the years 2005, 2006 and 2007 will be marginal and that the ruling is not binding on member states. «Our country has calculated its deficit on the basis of a specific model of booking military expenditures. The adoption of another model will undoubtedly bring about changes,» he said. Eurostat Director Guenther Hanreich had said in a reply letter to an article by Simitis in November 2004 that «there was clearly inadequate recording of military expenditures by the Greek authorities, irrespective of the accounting method adopted.» Eurostat acknowledged that the ruling may lead to «some revision of data, particularly as regards the public deficit» of member states, which do not all follow the same method. «In the case of military equipment built over many years, the time of government expenditure, and thus the impact on government deficit, is at the time of actual physical delivery of the final product and not at the time of transfer of ownership, which is often staged during the building process,» Eurostat said.