ECONOMY

Further reduction of deficit is main goal of 2007 budget

The main aim of the 2007 budget, due to be submitted to Parliament today, is to reduce the deficit to a level equal to 2.4 percent of Greece’s gross domestic product (GDP), from a projected 2.6 percent this year, and thus help Greece’s economy come out from under the European Union’s close scrutiny, or «excessive deficit procedure.» The 2007 budget forecasts a GDP growth rate of 3.8 percent. In general, its estimates appear realistic, for example the one on nominal GDP, which is expected to rise 7.1 percent, while ordinary revenues are expected to rise 7.6 percent and primary spending to 2.3 percent. Low estimates It also, contains, however, very low estimates, for example, in tax returns. The 2007 budget forecasts that return of excess taxes to taxpayers will remain the same as in 2006, while revenues from value-added tax (VAT) will rise by 9.8 percent. Private consumption, expected to rise by 3.8 percent, will, once again, be the motor of growth. Public consumption will slow down, to 1.1 percent growth, from 2.2 percent in 2006. Real average wages will rise 3 percent in 2007 and the unemployment rate, currently at 8.8 percent of the workforce, will drop to 8.2 percent, on the back of a significant increase in construction activity. Investment will increase by 7.4 percent, while exports will increase by 6.5 percent, up from 5.3 percent in 2006. The public investment program will expand by 8 percent, to 8.75 billion euros. Expenditures on interest on the public debt will rise to 9.75 billion euros from 9.53 billion in 2006, which means that Greece will spend as much on servicing its public debt as on social insurance and health. Spending on armaments will require 1.7 billion euros, up from 1.5 billion in 2006, as Greece will be taking delivery of weapons systems ordered up to, and including, 2003. An important element in the implementation of the 2007 budget will be the absorption of EU funds. The 2007 budget estimates that Greece will receive 6.65 billion euros next year, up from 6.44 billion in 2006. This is rapidly becoming the economy’s Achilles’ heel, with delays in project implementation threatening to deprive Greece of billions of euros in EU aid. Principal repayments Principal repayments will increase significantly in 2007. Specifically, they will rise 43.1 percent, to 24.3 billion euros, from 16.9 billion in 2006. This amount is higher than revenues from direct taxes (19.4 billion euros). Repayments of loan principals are expected to escalate in the next three years, peaking at about 28 billion in 2009. At the same time, the public debt will decline to 100.7 percent of GDP, down from 104.8 percent in 2006 and 107.5 percent in 2005. However, public debt may fall significantly if Eurostat, the EU’s statistics agency, accepts the revised national accounts figures. If Eurostat accepts all of Greece’s figures, dating back to 2000, then the 2000 debt will be revised downward to 88.7 percent of GDP, from the actual 111.6 percent figure, while the 2005 debt will be revised to 85.3 percent. The revised accounts will also affect the budget deficit, to a lesser extent.