Tax evasion and defense spending fuel borrowing

The Greek public borrowing requirements (PBR) continue to grow unabated. According to data from the Finance Ministry’s General Accounts Office, the country will borrow an estimated total of 37.6 billion euros this year, against an initial target of 30 billion. The data shows that in the nine-month January-September period the PBR came to 35.2 billion euros. The Finance Ministry’s planning until the end of the year includes two auctions of state securities, which are expected to raise about 2.4 billion. It has also emerged that in the same period loans for military spending, which are accounted for separately, more than doubled from the original budget target of 1.5 billion to 3.58 billion euros at the end of September. For 2007, the initial budget draft envisages borrowing for military spending of 1.7 billion euros but sources say this will rise to at least 1.9 billion. Recent changes by Eurostat in how military spending should be recorded in public accounting have created something of an upheaval. As of January 2006, military spending appears in the budget on the date of delivery of equipment, in contrast to the previous method used by the present government when it came into office, according to which the expenditure was booked near the date of the order and the advance payment for it. A further complication which hampers transparency in defense borrowing is posed by the fact that it is done directly by the Finance Ministry, in contrast to the rest of PRB which is conducted by the Public Debt Management Agency. Greece’s extensive underground economy and tax evasion deprive the public coffers of revenue and put upward pressure on PRB. The budget provides a clear picture that public revenue is sorely inadequate to meet the country’s spending requirements, recently detailed in Parliament by Deputy Finance Minister Petros Doukas. The 2007 draft budget foresees revenues totaling 48 billion euros, an increase of 7.4 percent from 2006, or equal to the growth of gross domestic product at current prices. Public debt servicing takes up the lion’s share of public revenues, amounting to 25 billion euros. Of the 23 billion euros remaining for spending, 21 billion will go to the payment of wages and pensions in the public sector. But public debt interest payments come to 9.75 billion euros. Additional items are subsidies of 9 billion to social insurance funds, public healthcare costs of 1 billion, subsidies to public transport and other organizations of 3 billion, the national participation of 4.85 billion euros in the Public Investment Program and public consumption expenses of 2.5 billion euros. The PRB for 2007 is estimated at 34 billion euros. European Union investment subsidies are projected at 4.3 billion.