Cutting the deficit

Forced into a tight corner by the necessity of bringing Greece’s economy back to within the EU framework, Giorgos Alogoskoufis presented a draft budget for 2005 – his first as finance minister – to Parliament yesterday, pledging to lower the public deficit and stimulate growth. Aware of EU dissatisfaction with Greece’s recent public deficit review, which put the new figures above the 3 percent ceiling imposed by the Stability Pact, Alogoskoufis made it clear that the government’s main aim is to reduce the deficit. He set himself a tall order by aiming to lower it from a projected 5.3 percent of GDP to 2.8 percent. He forecast growth of 3.9 percent of GDP. «The big deficit, the high public debt and the problems with the state of the public sector in general, demand changes and significant reforms to strategic planning and the policy for economic development,» said Alogoskoufis. Whether his proposals have done enough to convince EU officials that Greece is serious about reducing its deficit, as well as being on the right track to achieving it, remains to be seen. Initial reactions from the EU were mixed. Alogoskoufis also intends to reduce public debt from 112.1 percent of GDP this year to 109.5 percent in 2005. The finance minister aims to achieve these goals by reigning in public expenditure, boosting growth and imposing some tax rises. Government spending will rise by just 4.8 percent in 2005, compared to an 11.5 percent hike this year. Similarly, he expects government income to increase by only 3 million euros in 2005 from 40.7 million euros this year. Alogoskoufis forecasts revenues from income tax to increase by 9.5 percent and from indirect taxes by 7.2 percent, prompting opposition PASOK to claim Greeks were being asked to pay 3 billion euros more in new taxes. The minister hopes to benefit from not having to contend with Olympic Games costs anymore. He expects to pay around 600 million euros’ worth of Olympic bills in 2005, compared to the 2.25 billion euros the government is handing over for the Games this year. The government will gradually cut corporate tax rates from 35 percent to 25 percent, hoping to stimulate growth which, in turn, will increase government revenue from taxation. Another key element to Alogoskoufis’s plans for filling government coffers is privatization which, he says, will account for 1 percent of GDP (some 1.5 billion euros) in 2005.

Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.