Bud­get to be­lieve in in­stead of hope for?

Next year’s tar­gets are am­bi­tious and based on strong growth, but 2016 has pro­vided some pos­i­tives

Kathimerini English - - Focus - BY NICK MALKOUTZIS

ANAL­Y­SIS There was a time not too long ago that Greece’s na­tional bud­gets were a bit like the speed lim­its on the na­tional roads: Num­bers that you would like ev­ery­one to keep to but which no­body had any real in­ten­tion of abid­ing by.

Things have changed in re­cent years as a re­sult of Greece be­ing un­der an in­ter­na­tional bailout pro­gram and hav­ing to meet the strict fis­cal tar­gets set by its lenders, the euro­zone and the In­ter­na­tional Mon­e­tary Fund.

Rather than a photo op­por­tu­nity and a mo­ment to share in plat­i­tudes and wish­ful think­ing, the tabling of each year’s na­tional bud­get sets the po­lit­i­cal and eco­nomic tone for the months ahead. They ex­plain how the gov­ern­ment plans to meet the ex­haus­tive and ex­haust­ing goals agreed with the cred­i­tors and pro­vide a pre­cise guide to un­der­stand­ing if the fis­cal and macroe­co­nomic data during the course of the year show that Greece is on course or veer­ing off track.

The 2017 bud­get was sub­mit­ted to Par­lia­ment on Mon­day in what could prove a land­mark mo­ment during the Greek eco­nomic cri­sis. If the eco­nomic plan for next year proves ac­cu­rate, Greece will ex­pe­ri­ence the kind of growth it has not seen in more than a decade. If the gov­ern­ment’s pro­jec­tions are cor­rect, Greeks will be able to start be­liev­ing for the first time since they en­tered eco­nomic hard­ship in 2009 that the worst is be­hind them.

The bud­get fore­sees a mild re­ces­sion of 0.3 per­cent this year and strong growth of 2.7 per­cent of gross do­mes­tic prod­uct in 2017 so eco­nomic out­put passes the 180- bil­lion-euro mark, which is in line with what the Euro­pean Com­mis­sion has pre­dicted. Many econ­o­mists be­lieve that the forecast is overly am­bi­tious and Greece would be lucky to see an in­crease of more than half of what is be­ing pro­jected.

Years of dis­ap­point­ment

The truth is that after so many years of dis­ap­point­ment it is dif­fi­cult to see how the Greek econ­omy can turn around so quickly and con­vinc­ingly. At the same time, though, there are a num­ber of vari­ables that make it dif­fi­cult to pre­dict con­vinc­ingly ex­actly what will hap­pen next year.

Of­fi­cially, the bud­get sees the re­cov­ery be­ing driven mostly by a re­bound in pri­vate con­sump­tion, which is ex­pected to in­crease by 1.8 per­cent, a 9.1 per­cent rise in in­vest­ment and ex­ports shoot­ing up by 5.3 per­cent.

The se­cret in­gre­di­ent, though, is what will come out of Greece’s on­go­ing ne­go­ti­a­tions with the in­sti­tu­tions. Should the sec­ond re­view of the cur­rent ad­just­ment pro­gram be con­cluded soon, lead­ing to an agree­ment on short-term re­lief mea­sures and the flesh­ing out of the steps that will be taken to re­duce Greece’s pub­lic debt after the end of the bailout in 2018, as the gov­ern­ment hopes, the prospects for strong growth next year will be much better.

“For Greece, it is much better to spec­ify the [medium-term] mea­sures now even if… they will be im­ple­mented after the end of the pro­gram,” Bank of Greece Gover­nor Yan­nis Stournaras told Bloomberg TV on Fri­day. “Mar­ket clar­ity and trans­parency im­plies that we’d be better off if the mea­sures are spec­i­fied now.”

Apart from paving the way for Greece to en­ter the Euro­pean Cen­tral Bank’s quan­ti­ta­tive eas­ing pro­gram, al­low­ing Athens to bor­row at low rates and bring down yields on Greek bonds down, the de­tail­ing of medium-term debt re­lief mea­sures would pro­vide the coun­try with the first clear run it has had since sign­ing the first bailout agree­ment. It would push aside talk of Grexit, snap elec­tions, pos­si­ble flash­points with the lenders and al­low in­vestors to view Greece a bit more like a juicy prospect than an eco­nomic car­cass they can nib­ble bits and pieces from.

Many ‘ifs’

Clearly, there are many “ifs” along this road that could up­set the chances of a con­vinc­ing re­cov­ery, but there is, at least, a much­needed pos­i­tive tar­get to aim for.

Meet­ing the growth tar­get, or at least get­ting close to it, will be im­por­tant not just so Greeks can be­gin to see some of the ben­e­fits of the sac­ri­fices they have made during re­cent years but also be­cause the rate at which GDP grows will also de­ter­mine to a large ex­tent whether Athens can meet its also-am­bi­tious fis­cal tar­gets.

Greece’s pri­mary sur­plus is seen reach­ing 2 per­cent of GDP next year, which is roughly 1.8 bil­lion eu­ros higher than this year – a sig­nif­i­cant amount for the size of the lo­cal econ­omy.

An in­crease in eco­nomic out­put will be vi­tal be­cause the work to achieve this goal will be done largely on the rev­enue side of the bud­get. Net rev­enues are seen in­creas­ing by some 2.3 bil­lion eu­ros next year to reach a to­tal of 50.3 bil­lion, while pri­mary ex­pen­di­ture is pro­jected to drop by more than 1.4 bil­lion eu­ros to around 44 bil­lion.

In fact, the 2017 bud­get con­tains a se­ries of rev­enue in­ter­ven­tions that are ex­pected to yield nearly 2.5 bil­lion eu­ros. This in­cludes an ex­tra 716 mil­lion eu­ros from in­come tax, 440 mil­lion from the ex­cise tax on en­ergy, al­most 220 mil­lion from the in­crease in the value-added tax rate (ef­fec­tive from July 1 this year) and 142 mil­lion from rais­ing the ex­cise tax on tobacco prod­ucts.

The mag­ni­tude of this ex­tra ef­fort on the fis­cal front can be mea­sured against the rev­enues from pri­va­ti­za­tions, which are also forecast to reach around 2.5 bil­lion next year. It is clear that without strong growth, stem­ming from the lift­ing of un­cer­tainty, it seems im­pos­si­ble for Greece to meet the chal­leng­ing fis­cal tar­gets that have been set for next year.

Sur­pris­ingly, there have been some en­cour­ag­ing signs on the rev­enue front this year. De­spite 2016 be­ing an­other year of fric­tion and doubt, com­ing on the back of a night­mare 2015, rev­enues (or better, Greek tax­pay­ers) have man­aged to stay the course.

Rev­enues up

Ac­cord­ing to the bud­get ex­e­cu­tion data pub­lished by the Fi­nance Min­istry last week, rev­enues at the end of Oc­to­ber reached 42.4 bil­lion eu­ros, up 9.5 per­cent on last year. This helped the bud­get pri­mary sur­plus come in at 6.5 bil­lion eu­ros, al­most 3 bil­lion above the tar­get.

Could it be that after the battering from the eco­nomic tem­pest of the last year, Greek na­tional bud­gets are ac­tu­ally be­com­ing a re­li­able plan of ac­tion rather than a set of loose rec­om­men­da­tions des­tined for ir­rel­e­vance? Next year will pro­vide the de­fin­i­tive test.

The 2017 bud­get sees the re­cov­ery be­ing driven partly by a re­bound in pri­vate con­sump­tion, which is ex­pected to in­crease by 1.8 per­cent.

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