Greek government presents 2011 pre-budget, aims at 7% deficit, lower than previously projected

 

The Greek government today presented the 2011 pre-budget, set in the context of its 3-year Economic Policy Programme whose targets are to bring the budget deficit to under 3% of GDP by 2014, increase competitiveness and growth through sweeping structural reforms which help the country return to positive growth rates by the end of 2011, and safeguard the stability of the financial sector.  

The pre-budget projects for 2010 a 7.8% deficit-to-GDP ratio, below the 8.1% target in the Economic Policy Programme and almost 6 percentage points lower than the 2009 figure. For 2011, the government aims at a 7% deficit, lower than the 7.6% projected in the programme.

The fiscal adjustment effort has been heavily frontloaded, with fiscal measures equivalent to almost 8 percentage points of GDP undertaken in 2010. These have included inter alia a 15% reduction in public sector wages, a 10% reduction of pensions in the public and private sectors, a 4 percentage point increase in VAT, and substantial increases in excise taxes on petrol, alcohol and tobacco.

As a result of these measures, by the end of 2010 the state budget deficit will be 37% lower than in 2009 (reduced from 30,866 million euro to 19,473 million euro) while the general government deficit will be 43% lower (reduced from 32,752 million euro to 18,508 million euro) and attain 7.8% of GDP, lower than the Programme’s 8.1% target. This fulfils Greece’s commitment under the Economic Policy Programme and the decisions of the European Council. Finalised and verified by Eurostat general government figures will be reflected in the 2011 budget that is to be submitted to Parliament in November.

Fiscal consolidation in 2010 has been accompanied by extensive structural reforms to the state and the economy: the creation of an independent statistical authority, a new tax law, a new fiscal framework, an overhaul of local administration reducing the number of municipalities, a sweeping pension reform, labour market reform, financial sector reform, the liberalisation of services, the simplification of the procedures to establish a business, and the liberalisation of the trucking profession.

By the end of 2010, the reform of tax administration, a new framework for fiscal justice, simplification of licensing procedures, a new framework to facilitate investment, the restructuring of the loss-making railway sector, the liberalisation of the energy market and an action plan for privatizations will be completed.

The 2011 pre-budget aims to build on these achievements by continuing the pace of fiscal consolidation, and thereby restore the country’s credibility and access to international financial markets, and put it on a new path of economic growth and social justice.

For 2011, growth is projected to start recovering from its 4% decline in 2010 and show a more moderate decline of 2.6%. In terms of deficit, the Economic Policy Programme’s general government deficit target for 2011 is 17,065 million euro, or 7.6% of GDP, but the 2011 pre-budget sets a more ambitious deficit reduction target of 16,285 million euro or 7% of GDP.

This decline in the deficit is based on a projected increase in revenues in the state budget by 6.9% and planned decreases in expenditures by 5.9%. As a result, the state primary deficit will almost be eliminated as a percentage of GDP (288 million euro) by 2011, while at the level of the general government the primary deficit is forecast at 484 million euro, reduced by 90.9% compared to 2010.

 

These evolutions in expenditures and revenues underpinning the reduction in the deficit are based on implementing the specific fiscal measures agreed to with the EC, the ECB and the IMF and contained in the Economic Policy Programme. On the expenditure side these include reductions in operating expenditures and in public investment, as well as savings from the pubic sector wage bill. On the revenue side, they include additional revenues from the higher VAT rates established in 2010, from broadening the VAT base, as well as from taxes on property and a special levy on profitable enterprises.

 

In terms of debt, 2010 saw a small contraction in the pace of increase in the general government debt to GDP ratio despite the fact that debt figures included the assimilation of public hospital debts (over 5 billion euro), as well as the activation of state guarantees. In 2011 a further and more significant contraction in the rate of growth of public debt is expected.

 


State Budget (million euro)

 

2009

2010

2011

% Change

 

Implement.

Programme

Estimates

Projections

10/09

11/10

 

(a)

(b)

(c)

(d)

(b)/(a)

(c)/(a)

(d)/(c)

Ordinary Budget (OB)

 

 

 

 

 

 

 

1.            Net Revenue (a+b+c-d)

48.491

55.124

52.700

56.340

13,7

8,7

6,9

a.Ordinary revenue

52.308

58.744

56.144

59.313

12,3

7,3

5,6

b.Revenue of incorporated off-budget accounts

1.088

1.200

1.171

1.157

10,3

7,6

-1,2

c. Revenue from the bank liquidity support programmes

47

280

485

670

495,7

931,9

38,1

d.Tax refunds

4.952

5.100

5.100

4.800

3,0

3,0

-5,9

2.            Expenditures(a+b+c)

71.810

67.873

66.188

67.651

-5,5

-7,8

2,2

a.Interest payments

12.325

13.017

13.209

15.800

5,6

7,2

19,6

b.Primary expenditure

57.987

54.611

52.633

51.850

-5,8

-9,2

-1,5

c.Settlement of past hospital debts

1.498

245

345

 

-83,6

-76,9

 

3.            Deficit (OB) (1-2)

-23.319

-12.749

-13.488

-11.311

-45,3

-42,2

-16,1

Public Investment Budget (PIB)

 

 

 

 

 

 

 

4.            Revenue (a+b)

2.041

3.258

3.015

3.922

59,6

47,7

30,1

a.EU flows

1.858

3.109

2.854

3.722

67,3

53,6

30,4

b.Own resources

183

149

161

200

-18,0

-12,0

24,2

5.            Expenditures

9.588

9.200

9.000

8.700

-4,0

-6,1

-3,3

6.            PIB deficit (4-5)

-7.547

-5.942

-5.985

-4.778

-21,3

-20,7

-20,2

7.            State budget Balance (3+6)

-30.866

-18.691

-19.473

-16.089

-39,4

-36,9

-17,4

                (% of GDP)

-13,0%

-8,1%

-8,2%

-6,9%

 

 

 

7b.          State budget primary balance (7-2a)

-18.541

-5.674

-6.264

-288

-69,4

-66,2

-95,4

                (% of GDP)

-7,8%

-2,5%

-2,7%

-0,1%

 

 

 

GDP

237.494

231.000

236.100

232.100

-2,7

-0,6

-1,7

 

 

 

General Government Balance based on European System Accounts (ESA 1995)

(million euro)

 

2009

2010

2011

 

Estimates

Programme

Estimates

Projections

a. State budget deficit

-30.866

-18.691

-19.473

-16.089

b. Fiscal adjustments

226

550

-287

-1.396

  Interests fiscal adjustment

-623

 

-926

550

  Tax revenue fiscal adjustments

787

 

170

45

  Difference between claims and flows from EU

-313

 

900

150

Advanced payments by EU

911

 

100

50

Called guarantees

-553

 

-1.462

-2.161

Single treasury accounts

293

 

400

120

Swaps

400

   

Privatizations accounts

-250

 

-240

-150

Payments of past hospital debts   

  

345

 

Advanced payments adjustments    

-426

 

426

 

c. Military expenditure (deliveries)

-2.919

-2.700

-1.100

-1.400

d. Expenditure through special bonds issuance (to SSFs and LGs)

-531

-550

  

e. LGS, SSFs and other public entities

1.338

2.669

2.351

2.600

LGs

  

100

500

SSFs

  

2.251

2.100

f. General government balance (α+β+γ+δ+ε)

-32.752

-18.722

-18.508

-16.285

% GDP

-13,8%

-8,1%

-7,8%

-7,0%

g. Estimated General Government primary balance (f-2a table 4.1)

-20.427

-5.705

-5.299

-484

% GDP

-8,6%

-2,5%

-2,2%

-0,2%

GDP

237.494

231.000

236.100

232.100