ECONOMY

2007 budget, due to be unveiled on October 2, aims at 2.3 pct deficit

The government will present the draft for the new budget to Parliament on October 2, with its main target being cutting the deficit in 2007 to 2.3 percent of gross domestic product (GDP) from 2.6 percent, which is the target for this year. Another key figure will be the GDP itself, projected to close at 3.8 percent next year. This will determine the ordinary revenues, expected to rise by 7 percent, with spending rising by just 3 percent. The credibility of the 2007 budget and the response it will generate from the EU could be the way out of financial monitoring for Greece. The new budget will be assessed by the European Commission in May 2007. The Commission’s conclusions will be in its spring forecast, which will reveal whether the EU’s executive body expects Greece to keep its deficit below 3 percent. Economic and Monetary Affairs Commissioner Joaquin Almunia has repeatedly signaled that the 2007 budget can be the one to end the EU’s strict monitoring. He has said the new budget will be credible only if it contains measures of a permanent character. Those measures should be structural, related to both revenues and expenditures. Painful structural measures in Greece, with its massive public sector, are hard to take. Smaller tax interventions are preferred, including the following: 1) The increase in banks’ portion of tax paid upfront from 80 to 90 percent next year and to 100 percent in 2008. 2) A similar increase for companies. In 2007 tax paid upfront will reach 65 percent from 60 percent currently, climbing to 70 percent in 2008. 3) Road tax will increase by 10 to 15 percent at end-2007 for 2008 tax stickers. 4) The special tax on fuel will rise 5.8 percent as of January 1, 2007, for unleaded gasoline and by 6.2 percent for diesel. 5) A new rise in officially determined property values will be decided in March 2007.