Budget off the rails

Implementation of the 2003 budget is deviating alarmingly from the original targets, as spending is getting out of hand and there are fears that pre-electoral largesse will only make matters worse, despite the government’s assurances that things will get better in the second half of the year. Data released yesterday by the Ministry of Economy and Finance show that, at the end of June, the budget deficit was 6.7 billion euros, an 80 percent rise from the 3.7 billion recorded in the same period last year. This was mainly the result of a 13 percent rise in spending; the overall target for 2003 is 6 percent. A great part of the extra spending, 820 million euros, went toward emergency aid, mostly to farmers, after heavy weather destroyed production and damaged infrastructure early in the year. On the revenue front, after a horrendous start, things have improved but the government remains behind its targets. Public revenue rose 4.4 percent in the first half of the year, compared to a goal of 5.6 percent for the whole year. Revenue for the Public Investment Program is also lagging. Inflows from the European Union amounted to just 92 million euros, down from 206 million in the same period last year. It is obvious, then, that one of the reasons the government is accelerating its privatization program is to acquire much-needed revenue which will be directed completely toward paying off part of Greece’s huge public debt. Greece must reduce the debt by about five percentage points, to just over 100 percent of its gross domestic product (GDP) this year. As usual, the government presents a slightly misleading picture in presenting the facts: it claims that spending increased by 6.8 percent in the first half, simply by eliminating the 820 million euros paid as emergency aid: as if this did not burden the budget. Likewise, it claims that revenue increased by 7.2 percent, instead of 4.4 percent, by arbitrarily removing 470 million in last year’s revenue from the conversion of drachmas into euros. Despite these problems, the government is poised to announce a significant increase in farmers’ pensions, beginning next year. This will burden the next budget. However, with elections only nine months away, at most, it is easy to foresee the impact of pre-electoral largesse on the budget.