GREECE HAS unveiled a draft budget for 2012 that aims to compensate for a higher than projected spending deficit this year and put the public finances back on track as agreed with international lenders.
The draft budget revises this year’s deficit projection upwards to 8.5 per cent of gross domestic product against a target of 7.6 per cent of GDP, mainly because of a deeper than forecast recession and weak revenue collection.
Finance minister Evangelos Venizelos said in a written statement to parliament that the budget reinforced “a difficult fiscal adjustment effort – transforming a primary deficit [before interest payments on debt] of €24 billion in 2009 into a €3.2 billion primary surplus in 2012”.
A €5 billion package of tax increases and spending cuts for 2012, on top of €2.1 billion in the fourth quarter, would “correct for slippages” this year, he said. “We have merged the fiscal targets of 2011 with those of 2012 as agreed with the troika [experts from the European Union and International Monetary Fund] in terms of absolute figures.”
But he warned that, unless revenue collection improved significantly in the fourth quarter, this year’s deficit could rise by another 0.5 percentage points.
Spending cuts in the budget include a 5.8 per cent overall reduction in wages and pensions next year. The elimination of 30,000 public sector jobs would bring savings of €200 million in 2012, with a further €950 million coming from the launch of a unified payment system for civil servants. Spending on health and welfare would fall by 9 per cent.
Platon Monokroussos, at EFG Eurobank, said: “The overall deficit target this year remains ambitious. But the execution of the budget is likely to improve thanks to new taxes, as well as earlier measures such as the recent hike in value-added tax.”
Greeks are due to pay an extra “solidarity” tax this month of 2-5 per cent of annual income and a separate property tax in the coming weeks that would be added to household electricity bills.
But the burden of additional contributions has revitalised a grassroots opposition movement known as “I won’t pay”.
Protesters in several cities last week burned documents from the tax authorities requesting payment of the solidarity contribution. “The tax burden threatens to become unsustainable for many families whose members have lost jobs because of recession,” said Pantelis Papageorgiou, an unemployed office worker.
The budget assumes the country will remain in recession for a fourth successive year, with the economy projected to contract by a further 2.5 per cent on top of 5.5 per cent this year. Spending cuts include further reductions in pensions and the elimination of 30,000 public sector jobs, with projected savings of €950 million.
The primary surplus, if achieved, would reduce Greece’s annual payments to service its bloated debt by 1.5 percentage points of GDP. But the debt will continue its upward trend, rising from 162 per cent to 172 per cent of GDP by the end of 2012, according to the draft budget. – (Copyright The Financial Times Limited 2011)
