Deficit soars as revenues plummet

The soaring of the budget deficit in the first half of the year to 17.9 billion euros, according to the Bank of Greece (BoG), proves that the government’s extraordinary tax measures have not helped so far. The desperate need for revenues and considerable rise in expenditures have made the budget deficit swell in the year to June to the extent that it has exceeded the annual target. Consequently, it is all but certain there will be fresh tax measures in October, particularly regarding indirect taxes. The special consumption tax on tobacco and fuel is also likely to be revised, sources suggest. The monthly BoG data showed that the deficit soared at end-June to 125 percent of the year’s target (14.2 billion euros) from 12.7 billion euros, or 5.1 percent of gross domestic product, in the first five months. Now the deficit amounts to as much as 7.2 percent of GDP. Impressively, within just the 30 days that also included the European parliamentary elections, the deficit grew by no less than 5 billion euros, one of the greatest monthly increases recorded in recent years. The deficit had stood at 8 billion euros in June 2008. The biggest problem for the budget at present is revenues, with data from the first six months being disappointing. A top Economy Ministry official suggested that the situation has not improved over the previous months, noting that there is a also a problem with spending. Receipts from companies’ income tax have plummeted due to the ailing state of the market and the dip in corporate profits last year. This is also affecting receipts from value-added tax. The ministry source said that although the picture is not entirely clear, revenues in the year to June have dropped by 1-2 percent from last year, while the budget target was for 13.2 percent growth. At the same time expenditures have ballooned by over 20 percent, against a target of 9.1 percent. Ministry officials now expect zero growth, if not minus 0.1 percent for the second quarter. The source added, «We are heading to an extension by one year to the deadline for reducing the deficit to below 3 percent.»