ECONOMY

Ambitious deficit target included in next year’s draft budget, at 7 percent of GDP

The government yesterday set itself the ambitious target of bringing the budget deficit down to just 7 percent of the gross domestic product (GDP) by the end of next year, while stressing that the people’s sacrifices will not be in vain. Finance Minister Giorgos Papaconstantinou submitted to Parliament the first draft of the 2011 budget, which provides for the deficit to drop even lower than the level anticipated by the International Monetary Fund, which is 7.6 percent. The government hopes the deficit will come in at 7.8 percent of GDP this year. There is, however, a provision included in the draft which implies that this target will only be met if there are no new problems for the economy, such as a further drop in growth. The draft budget suggests that this year’s recession will amount to 4 percent but will be reduced to 2.6 percent next year. The economy is expected to return to growth in 2012 at a 1.1 percent rate, with the even healthier level of 2.1 percent foreseen for 2013. The tax measures included are by and large those already reported, aimed at an increase in revenues from direct and indirect taxation of 5 percent for this year. Unemployment will come this year to 11.6 percent (from 9.5 percent last year) and soar to 14.5 percent in 2011 and 15 percent in 2012 before dropping again in 2013 to 14.6 percent. Private consumption will drop by 3.5 percent this year and by 4.5 percent in 2011. It will rebound by 1 percent in 2012. Inflation is seen closing at 4.6 percent this year, up from 1.3 percent in 2009, with the impact of taxation on it amounting to 3.5 percent. For next year, inflation will shrink to 2.2 percent and then in 2012 to 0.5 percent, according to estimates in the draft budget. Expenditure for salaries and pensions will go down by 1.4 percent in 2011 from this year, while funds for new hirings remain at 2010 levels. Social security fund grants will shrink by 4.2 percent, but social protection spending (benefits etc) will increase by 12.2 percent. Funds for state corporations (e.g. public transport) will decline by 5.5 percent, while consumer expenditure (transport expenses, procurements etc) will drop by 10.7 percent in 2011. Public debt remains the thorn in the Greek economy’s side, as it is expected to grow by 13.7 percent of GDP this year compared with 2009 and by 9.5 percent next year, to come to 142.2 percent of GDP, or 330.13 billion euros. To serve this debt, the budget will use the loans from the eurozone countries and the International Monetary Fund, although the target is for the nation to return to the international bond markets as soon as possible. The draft budget further provides for a second issue of bonds intended for diaspora Greeks in the USA, Canada and Australia. Policy notes There is no mention of specific privatization plans but certain structural changes are mentioned as policy notes: New interventions are being planned for the social security system, more closed-shop professions will open up, such as the occupations of lawyers, notaries, architects, engineers, certified accountants etc, the wholesale market of electrical energy will also open up along with the rationalization of retail rates for consumers. «The people’s sacrifices will not go to waste,» said Papaconstantinou, calling the draft budget «one more major step toward putting the country’s fiscal situation in order,» through which «we are regaining trust both inside and outside the country.» «The key figure is the deficit,» suggested Deputy Finance Minister Filippos Sachinidis, after the draft budget was approved yesterday by the Cabinet. In absolute figures, the deficit will decline to 16.285 billion euros in 2011 from 18.508 billion this year. Tax revenues The fiscal measures taken to support the increase in budget revenues include an increase in value-added tax rates that will fetch about 1 billion euros next year, while a shift in the rate brackets, with some commodities moving from the 11-percent rate to the 23-percent bracket, will bring in another 1 billion euros. Further revenues will come from the special consumption taxes on fuel (250 million euros), on tobacco (300 million) and on alcohol (50 million) that have already been imposed. A luxury tax on expensive commodities, also applying as of this year, will bring in 40 million euros, while the so-called «green» road tax will add another 300 million euros to public coffers. The rights for games of chance are set to fetch 200 million in 2011 and 400 million euros in 2012, while for licenses to operate games of chance, the state will receive 500 million euros in 2011 and 225 million in 2012. The extraordinary levy, imposed due to the crisis on profitable companies, will now bring in 1 billion euros in 2011, a revised figure from the original plan for 600 million. Companies with pretax earnings of up to 5 million euros will be exempt, while the levy rate will range from 5 to 10 percent, depending on the level of profits. Finally, an increase in real estate prices used for tax purposes (the so-called objective values) are expected to fetch 270 million euros next year and 200 million in 2012.