A woman withdraws cash from an ATM machine in Athens on August 26, 2019 | Angelos Tzortzinis/AFP via Getty Images
Greece presents ‘radical’ pro-business budget
New Democracy vows to boost growth and spending, but its high estimates raise eyebrows.
ATHENS — Greece’s new conservative government put forward its first budget Monday, with ambitious growth targets and a distinctly pro-business line.
New Democracy‘s first draft budget since taking over from the far-left Syriza in July envisages tax cuts with an eye to encouraging private spending and foreign investment. Deputy Finance Minister Theodoros Skylakakis described it as a “radical turn to growth, employment and income increases.”
Greece’s economy started to grow in 2017, albeit at an anemic rate, and it exited its third bailout program in August. International creditors, who continue to monitor fiscal policy closely, may be taken aback by Athens’ promises to deliver surpluses of 3.5 percent of gross domestic product — excluding interest payments — until 2022 and then a rate of 2.2 percent until as far off as 2060.
Greece still has major hangovers from its prolonged financial crisis. Its national debt and jobless rate remain the highest in the eurozone and its banks still have to deal with the biggest pile of non-performing loans in the European Union.
Yannis Mouzakis, co-founder of Greek analysis website MacroPolis, singled out the conservative government’s signature budget moves as “lowering corporate taxation, dividend taxes and the entry tax rate for personal incomes.”
He said the the upwardly revised growth estimate of 2.8 percent was well above forecasts from organizations that still monitor Greece’s performance, “including the European Commission, which will need to sign off the budget parameters.”
The European Commission forecasts 2.2 percent growth in Greece next year.
The government said it will stick to the country’s fiscal promises for 2019 and 2020, but it wants to renegotiate with creditors the primary surplus targets from 2021 and onwards.
But achieving both the fiscal targets and the growth numbers set in the draft budget will prove extremely challenging. Greece’s Fiscal Council, which monitors the process, says the 2020 growth target is “particularly demanding.”
Greece’s creditors have already identified a fiscal gap of around 0.5 percent of GDP in the government’s 2020 budget plans. The Greek side is proposing a range of alternative measures to plug the gap and get creditors consent in coming days.
“A lot of these [measures] relate to fighting tax evasion. In the past, the country’s creditors have met such proposals with skepticism,” said Mouzakis.
In late September, the International Monetary Fund backed Greece’s call for looser fiscal targets to accelerate growth, but insisted on the need for lower pension spending and a broader tax base. These are moves which the current government, just like its Syriza predecessors, is reluctant to implement.
The Fund sees Greece’s growth rate for both 2019 and 2020 at around 2 percent and adds that it “will take another decade-and-a-half for real per capita incomes to reach pre-crisis levels.”
In the meantime, a recent decision by the the country’s highest court forces the government to move ahead with radical changes in the pension system, which risk derailing its fiscal targets.
The Council of State ruled unconstitutional some provisions of social security legislation introduced in 2016, meaning the government will now, among other things, have to lower the social security contributions for the self-employed and for farmers, which were almost double those paid by other employers. When New Democracy was in opposition it criticized these measure, but will now have to find ways to cater for these reforms in its budget.