With the argument that the pension cuts for 2019 are not financially necessary, the Greek Finance Ministry has just submitted the 2018 draft budget to the Greek Parliament.
Draft budget tables include the adopted measures (pension cuts) and voted countermeasures, resulting in a primary surplus of 4.14% of GDP in 2019.
However, in an alternative scenario, with an additional table under the heading of “planned financial interventions”, pension cuts are not applied. Only the positive measures that were announced by Prime Minister Alexis Tsipras at the latest TIF (reduction of income, insurance contributions, etc.) are included in the package and the primary surplus is 3.8% of GDP by the ESA or 3.56% on the basis of enhanced surveillance methodology.
As the Finance Ministry stresses, the satisfactory fiscal performance of 2015-2018 and the improvement in the macroeconomic magnitudes of the Greek economy allow for a gradual change in the fiscal policy mix to increase household disposable income, support for sustainable development and addressing, in a targeted manner, chronic deficits in the field of social protection.
The positive measures of 2019
For 2019, the change in the fiscal policy mix is implemented through the following measures the Government intends to implement:
• On the revenue side, (a) the reduction of ENFIA by 10% in the middle, (b) the reduction of insurance contributions of self-employed and farmers, (c) the reduction of tax on distributed profits, and (d) of legal entities’ income from 29% to 25% with a 1% reduction per year.
• On the expenditure side, (a) the subsidy for insurance contributions for young people under the age of 25, (b) the introduction of a new rent subsidy scheme based on economic and family criteria, (c) the strengthening of special education and training schools, (d) strengthening the ‘Home Help’ program.
According to the estimates of the State Budget Draft, both the fiscal expansion measures described and the non-implementation of pension and balancing interventions are fully compatible with the country’s fiscal target as set in the Medium-term Financial Strategy Framework 2019-2022.
Develop and reduce unemployment
In the basic figures, the draft estimates there will be a growth rate of 2.5% in 2019, with private consumption getting increased by 1.1% and public revenue by 0.6%, an explosive 11.9% increase in gross fixed capital formation, an increase in exports of 5, 8% and imports by 5.2%, GDP deflator to 1.3% and unemployment to 16.7% of the labour force against 18.3% this year…. / IBNA