ECONOMY

Gov’t plans to slash, then wipe out budget deficit

Greece’s newly re-elected conservative government yesterday pledged to cut its budget deficit next year by one-third and eradicate it in 2010. Finance Minister Giorgos Alogoskoufis presented an ambitious 2008 draft budget, aimed at slashing the deficit to 1.7 percent of GDP from an estimated 2.5 percent this year. He told a news conference the government’s main target was to continue to cut deficits amid a climate of buoyant economic growth until the books are balanced in 2010. «The top goal is to have a balanced budget by 2010,» he said. «This is the first budget since the country’s exit from the excessive deficit procedure.» After repeatedly under-reporting its budget deficits to the EU for years, including 2001 when it joined the eurozone, Greece has shored up public finances and was removed from the EU’s list of budgetary offenders earlier this year. Greece is awaiting the EU’s approval of a GDP revision that will increase the national output by about 25 percent, including parts of the black economy. The draft budget is based on figures before the revision. If approved by Eurostat, the review could mean the 2008 deficit would go down by about half a percentage point, economists estimate. Ambitious goals Next year’s budget aims for GDP growth of 4 percent with public debt dropping to below 100 percent of GDP for the first time, Alogoskoufis said. It sees inflation averaging 2.6 percent versus 2.7 percent in 2007. Analysts said the budget was ambitious, given the increased spending expected for the reconstruction of fire-stricken areas and slower economic growth expected in the eurozone. «The government is too optimistic as far as the 2008 budget deficit, as it is based on its favorable forecast for 2008 GDP growth – 4 percent seems rather high, due to the deceleration of the GDP growth expected in the eurozone,» said Theodor Schonebeck, an economist at Deutsche Bank. The cost to service Greece’s debt, the second highest after Italy’s in the eurozone, will be almost -10.5 billion in 2008, about 4.7 percent of GDP. Alogoskoufis said his government will continue the prudent policies that turned around the economy during its second term in office. «This is a budget that reflects our policy for fiscal consolidation and reforms. The model is based on a mild fiscal adjustment, cutting waste in the public sector and combating tax evasion,» he said. Revenues would grow by 11.6 percent while spending will rise by 6.2 percent. Of the additional revenue, amounting to 6 billion, -4 billion will come from indirect taxes, including -2.5 billion from VAT and -1.3 billion from the special fuel consumption tax. Nevertheless, Alogoskoufis said the government will continue to reduce direct taxes while a VAT hike was not in its plans. The budget penciled in -1.6 billion in privatization proceeds. State divestments on the government’s agenda next year include its holding in OTE telecom, Attica Bank, Postal Savings Bank as well as ports, Athens International Airport and Olympic Airlines. The draft budget said that apart from better tax collection, the main revenue boost will come from a 275 percent rise in property tax intake, from -240 million this year to -900 million, and a 45 percent rise in the special fuel tax. The extra intake in property taxes will result from a unification of the multitude of various existing levies and a likely raise in officially determined property values. «The revenue target is feasible but very difficult,» said Dimitris Maroulis, an economist at Alpha Bank. «It can be achieved if tax evasion is tackled and if fuel smuggling is dealt with, possibly adding revenues of -1 billion.» The budget envisages a drop in unemployment from 8.3 percent now to 7.4 percent. (Reuters, Kathimerini)