This is how Greece kept its bud­get on track in Q1

Financial Mirror (Cyprus) - - FRONT PAGE -

Re­cent Greek bud­get data showed the huge rev­enue gap of 968 mln eu­ros recorded in Jan­uary nar­rowed to 389 mln by the end of the first quar­ter (Q1) of 2015. At the same time, pri­mary ex­pen­di­ture, which was just 53 mln bet­ter than tar­get in Jan­uary, dis­played a strong out­per­for­mance of 1.18 bln by the end of March.

The un­der­ly­ing pri­mary bal­ance (ex­clud­ing the im­pact of Public In­vest­ment Bud­get), which is de­fined as rev­enues (be­fore tax re­funds) mi­nus pri­mary ex­pen­di­ture, showed the short­fall of 915 mln eu­ros recorded in Jan­uary grad­u­ally reversed to an out­per­for­mance of 791 mln by the end of March.

An­other im­por­tant point to take away is that rev­enues ex­ceeded pri­mary ex­pen­di­ture in all three months of Q1, with the un­der­ly­ing monthly pri­mary sur­plus rang­ing be­tween 240 and 845 mln eu­ros. This means that the col­lected rev­enues in each month are more than ad­e­quate for the pay­ment of pri­mary ex­penses (salaries, pen­sions, grants to so­cial se­cu­rity sec­tor and a large part of non-pay­roll costs).

A closer look at the evo­lu­tion of the key bud­get items re­veals some in­struc­tive find­ings for the un­der­ly­ing trends that were recorded within Q1.

On the rev­enue front, the tar­get for Jan­uary was ex­cep­tion­ally high as it was ini­tially due to in­clude VAT rev­enues and the fifth in­stall­ment of the sin­gle prop­erty tax (ENFIA). How­ever, the neg­a­tive im­pact from the pre-elec­tion pe­riod as well the post­pone­ment of the VAT pay­ment by one month had a marked im­pact on the rev­enue un­der­per­for­mance of that month.

VAT pay­ments in Fe­bru­ary did not re­sult to any sig­nif­i­cant rev­enue col­lec­tion, with VAT rev­enues com­ing in 30% lower than those col­lected in Jan­uary. How­ever, Fe­bru­ary closed with a mod­est rev­enue out­per­for­mance of 91 mln, mainly boosted by higher in­come tax month-on-month.

It is also note­wor­thy that ac­tual rev­enues from ENFIA were very close to the tar­geted 2.65 bln eu­ros, de­spite re­peated spec­u­la­tion that many home own­ers would not pay the prop­erty tax.

In the ab­sence of any ENFIA in­stal­ment, the tar­geted rev­enues for March (2.79 bln eu­ros) were the low­est for the first half of 2015. The ac­tual fig­ure came in at 3.28 bln, well be­low those for Jan­uary and Fe­bru­ary but 488 mln eu­ros above the monthly tar­get.

How­ever, the marked over-per­for­mance in March is to a large ex­tent at­trib­uted to one-off or non-re­cur­ring items. March rev­enues in­cor­po­rated 147 mln eu­ros from the fast-track set­tle­ment of tax ar­rears that was im­ple­mented in the last ten days of the month. In ad­di­tion it in­cluded pri­vati­sa­tion rev­enues of 190 mln that were ini­tially due to be re­ported in the first two months of the year.

April rev­enues are tar­geted at 3.12 bln. This fig­ure also in­cor­po­rates the quar­terly pay­ment of VAT. How­ever, the ac­tual fig­ure will in­clude in­come from two rev­enue sources that were not ini­tially bud­geted.

The first re­lates to a non-re­cur­ring item of 555.9 mln eu­ros that the state re­ceived from the Hel­lenic Fi­nan­cial Sta­bil­ity Fund (HFSF) on March 19 and re­lates to one-off fees Greek banks paid in 2012 ahead of their cap­i­tal in­creases with HFSF be­com­ing their dom­i­nant share­holder at that time.

Although this amount is to be re­ported in April’s bud­get rev­enues, it is un­likely to have any pos­i­tive on the state’s cur­rent cash flow as it has prob­a­bly al­ready been utilised since it was dis­burse­ment in mid-March.

The sec­ond non-bud­geted item re­lates to the col­lec­tion of the (nor­mal) set­tle­ment of tax ar­rears in up to 100 in­stal­ments. Ac­cord­ing to a Fi­nance Min­istry an­nounce­ment, rev­enues from the set­tle­ment of 2.2 bln eu­ros in tax ar­rears reached 110 mln in the first 13 days of the scheme.

Sum­ming up, April rev­enues are ex­pected to be boosted by 667 mln eu­ros not ini­tially bud­geted. Note though that un­like the in­come from the HFSF, rev­enues from the set­tle­ment of tax ar­rears should be ex­pected to boost the amounts col­lected in the com­ing months.

Go­ing for­ward, May and June rev­enues were ini­tially seen at much higher lev­els of 3.83 and 3.53 bln re­spec­tively as they in­cor­po­rated the first pay­ments of 2015 per­sonal in­come tax or ENFIA. How­ever, it was re­cently an­nounced that in­come tax is due to be paid as of July, while the new gov­ern­ment has not yet clar­i­fied its stance on the ENFIA pay­ment for this year.

The prop­erty tax may be re­tained for an­other year in its ex­ist­ing for­mat due to the coun­try’s tight fis­cal po­si­tion and rev­enue lag in Q1 but it is not clear when home­own­ers will start hav­ing to pay it. This means that com­pared to the 2015 bud­get tar­gets, the ac­tual rev­enues for May and June are likely to fall short of their tar­gets.

Mov­ing on to ex­pen­di­ture, the break­down of the three key com­po­nents (salaries and pen­sions, grants to so­cial se­cu­rity sec­tor and other pri­mary ex­pen­di­ture) shows that the lat­ter two ex­plain the sub­stan­tial out­per­for­mance of the head­line fig­ure in Q1.

Pri­mary ex­pen­di­ture was beat the tar­get by 53 mln eu­ros in Jan­uary and then ac­cel­er­ated to an over-per­for­mance of 538 mln in Fe­bru­ary and fur­ther to 589 mln in March, mean­ing the ac­tual quar­terly fig­ure was 1.18 bln eu­ros bet­ter than the tar­get.

Salaries and pen­sions were es­ti­mated at an av­er­age of 1.56 bln eu­ros per month in the first half of the year, with the ac­tual fig­ure in Q1 com­ing in al­most ex­actly on tar­get.

Grants to the so­cial se­cu­rity sec­tor were just 40 mln eu­ros bet­ter than tar­get in Jan­uary but this was ex­tended to 171 mln in Fe­bru­ary and much higher to 437 mln in March. For Q1, this spe­cific item was 648 mln bet­ter than tar­get, mak­ing up 55% of the to­tal pri­mary ex­pen­di­ture out­per­for­mance. What lies be­hind this per­for­mance: 1) Other health­care ex­penses (cov­er­ing hos­pi­tal deficits) be­ing reined in to just 43 mln eu­ros in Q1, cor­re­spond­ing to just 3.9% of the an­nual tar­get of 1.12 bln.

2) Only 95 mln eu­ros, or just 6.6 %of the an­nual tar­get of 1.44 bln, go­ing to­wards so­cial pro­tec­tion in Q1.

In par­tic­u­lar, al­lowances to fam­i­lies with many chil­dren amounted to 5 mln in Q1 ver­sus an an­nual tar­get of 650 mln eu­ros, while grants to the In­ter­gen­er­a­tional Sol­i­dar­ity Fund (AKAGE) were zero in Q1 against an an­nual tar­get at 454 mln. Since the new gov­ern­ment has re­peat­edly stressed its sen­si­tiv­ity on the is­sue of so­cial pro­tec­tion, it is likely both items will re­turn to nor­mal lev­els in the sec­ond half of the year, elim­i­nat­ing the gap re­ported so far.

Other pri­mary ex­pen­di­ture was just 12 mln above tar­get in Jan­uary but the trend reversed in the next two months, with the ac­tual fig­ures com­ing in 366 and 142 mln be­low their tar­gets in Fe­bru­ary and March re­spec­tively.

Over­all, the non-pay­roll ex­penses topped 1.9 bln eu­ros in Q1 com­pared to a tar­get of 2.4 bln. This 500 mln made up 42 per­cent of the pri­mary ex­pen­di­ture over-per­for­mance.

The more de­tailed break­down shows that two spe­cific ex­penses were con­tained:

1) Con­sump­tion and non-al­lo­cated ex­pen­di­ture, which stood at 127 mln in Q1 at just 8.1% of the an­nual tar­get of 1.57 bln.

2) Agri­cul­tural sub­si­dies at 65 mln in Q1, cor­re­spond­ing to 10.9% of the an­nual tar­get of 591 mln.

Un­like grants to the so­cial se­cu­rity sec­tor, it is not clear whether the cut in th­ese par­tic­u­lar non-pay­roll ex­penses re­lates to ef­forts to tackle ex­ces­sive spend­ing or the post­pone­ment of pay­ments for later in the year, lead­ing to an in­crease in ar­rears to the pri­vate sec­tor.

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