ECONOMY

Gov’t drafts EU-friendly budget

The 2007 budget, which is still be drafted, is expected to remain faithful to the tight guidelines the European Union has imposed on Greece. According to sources, it will provide for a fiscal deficit of 2.3 percent of gross domestic product (GDP), an increase in revenues of 5-6 percent (half of this year’s rate) and a slowdown of the rate of growth in expenses to 5.3 percent. The projected targets are calculated to produce additional revenue amounting to 0.6 percent of GDP – retaining the total at around 42 percent – while expenses will be reduced by 0.3 percent of GDP. This mean a total savings of more than 2 billion euros, including a rise of 200 million euros of inflows from the EU. The economy’s growth rate is projected at 3.8 percent, but if this year’s rate is kept at 4.1 percent in the third quarter, an upward revision is likely when the final draft is published in November. The ratio of indirect to direct taxes is seen rising, with a 13.9 percent increase in indirect taxes and a 9.1 percent increase in direct taxes. Revenues Revenues will take a cut of 150 million euros from the recently announced reductions in income tax rates, while pension supplements and farmers’ pensions will cost an additional 200 million euros. At the same time, the increase in the special tax on petroleum products, scheduled to come into effect on January 1, will add 400 million euros to government coffers. Also, hikes in mobile telephony taxes will add between 90 and 200 million euros in revenues. A further 75 million euros will be added from higher taxes on tobacco. Revenue projections include the scheduled further reduction in corporate tax rates to 25 percent. The battle against tax evasion may also help. Expenses General government expenses are projected to fall to 44.3 percent and 43.7 percent of GDP in 2007 and 2008 respectively. This will be partly achieved through a fall in interest expenses, expected to fall to 4.7 percent of GDP in 2007 and 4.5 percent in 2008. Improvements are also projected to result from more efficient allocation of funds and cuts in public consumption (government salaries, goods and services rendered to the state and subsidies). Public debt is seen falling to 101.1 percent of GDP from 104.8 percent in 2006. This is seen mainly as the result of a rise in the primary surplus. In a Reuters interview yesterday, Economy and Finance Minister Giorgos Alogoskoufis reiterated his confidence that Greece will bring its 2006 and 2007 budget deficits to below the 3 percent of GDP limit set by Brussels. «I am confident that we will be below 3 percent this year and the next,» he said. «We expect this year’s deficit to be below 2.6 percent of GDP and next year’s at 2.3 percent.» Despite praising Greek efforts to cut a 2004 deficit of 6.6 percent, Brussels sees the budget gap at 3 percent this year and widening to 3.6 percent in 2007. «I think that when we present the draft budget, the Commission will review its estimates,» Alogoskoufis said.