The budget train is about to derail

Budget revenues were particularly disappointing in the first three months of the year, posting a 0.1 percent decline compared to the same quarter last year, against a target of 15 percent growth, according to government figures. The Economy and Finance Ministry announced yesterday that the state budget deficit came to 6.9 billion euros in Q1 2009, against a forecast of 8.8 billion euros for the entire current year. Expenditures soared too, growing by 23.1 percent in the January-March period, while the budget had estimated growth of just 9.1 percent. The revenue shortfall came to 1.65 billion euros in the first three months of the year, indicating that the deficit has widened due to a massive drop in value-added tax revenue in the first four months of the year, after which initial VAT figures are announced. Sources suggest that in the January-April period VAT revenue dropped by 6 percent, against a target of 10.7 percent growth compared to the previous year. The reasons for the contraction of VAT revenues include the ineffectiveness of monitoring mechanisms (possibly in view of the upcoming European elections), the decline in economic activity and tax evasion on the part of enterprises. This especially negative development once again highlights how hastily the budget’s targets are set, often on the basis of overly optimistic or illogical estimates, particularly at a time when the world is experiencing a major financial crisis. After Greece sent its stability program to the European Commission and the International Monetary Fund, it was no real surprise that both bodies spoke of outlandish estimates which not only failed to factor in the global crisis but also did not take into account domestic structural imbalances. As a result, the government will definitely have to take new measures, as it will need an extra 5 billion euros to reduce the budget deficit on account of low revenues.