Plugging budget revenue holes
The government tried to ease its creditors’ concerns yesterday by suggesting it will use a cushion of 4 billion euros to soften the blow from the debts of hospitals, local authorities, public companies and social security funds which have recently been added to the country’s public debt. This cushion will come from cuts in public spending and will offset some of the shortfalls in revenues, which had worried the representatives of the European Commission, the European Central Bank and the International Monetary Fund, who began an official visit to Greece yesterday in order to monitor the implementation of the memorandum of cooperation between the government and the three creditors. The data that Finance Minister Giorgos Papaconstantinou presented to the visiting experts yesterday suggested that public revenues are lagging by 300 million euros, calculated on each month’s potential. According to the target set, though, the shortfall comes to 1.4 billion euros. This was not the only cause for worry on the part of the creditor representatives. They also voiced concern about the country’s soaring inflation, the methods of containing expenses in public companies and hospitals, and the obligations that may have been undertaken but have not yet been made known to the state’s General Accounting Office. The government responded that inflation has indeed grown and that this is due to the impact of tax hikes. In fact, inflation is the only parameter which is to be altered in the memorandum, as the latter had provided for a 1.9 percent consumer price growth rate, while inflation has exceeded 5 percent. Athens also presented a restructuring program for public revenues for the next few months supported by receipts from the single property tax, the value-added tax, the extraordinary levy on properties etc. At the same time, it will increase monitoring across the spectrum of economic activity with more data checking. It further announced that the 2010 budget is being put through an extreme stress test, which, according to a high-ranking official at the Finance Ministry, indicates that even in the worst-case scenario, the target for reducing the public deficit by 5.5 percentage points of gross domestic product should be achieved. As a result, there is no need for fresh measures within 2010 in order to reduce the deficit to 8.1 percent of GDP. Ministry officials also suggested that recession this year will range between 3 and 3.2 percent. The government is also planning to restructure loss-making public companies, particularly those in the public transport sector, in the same pattern as that used for the Hellenic Railways Organization (OSE). A top Finance Ministry official told the creditors’ representatives that state companies with deficits will be reformed next year.
