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Tuesday, October 14, 2014

Greece 2015 Budget: Too Good to Be True or trying to live their own myth?

A few years ago, the Greek Tourism Organization launched a campaign dubbed “Live Your Myth in Greece.” It was good, catchy, and it worked. Today, following the 2015 budget proposal, it seems that the ministry of finance officials are trying to live their own myth: That of reviving an economy that has been in intensive care for the past six years.

The draft budget they tabled in parliament on Monday is at best optimistic. It argues that the economy will expand by 2.9 percent next year based on more private investments and an increase in consumption. At the same time, fiscal targets set by the troika of international lenders will be met for the third consecutive year.

Greece’s new budget provides for a 30 percent cut on heating fuel tax and a reduction in the solidarity tax. It also provides a clawback of salary cuts for judges, the military and the police, after the Supreme Court ruled such cuts illegal.

In addition, the budget figures project that Greece will achieve a primary surplus amounting to 2 percent of gross domestic product – higher even than the 1.5 percent agreed to by the EU and IMF.

Ever optimistic, Deputy Finance Minister Christos Staikouras declared that Greece is on the path of long-term growth. He believes that all the outlays the government promises will be offset by increased revenues that will come from economic growth.

The growth promised is projected as a 12 percent increase in investments, a 5.2 percent increase in exports and a 2.6 percent increase in jobs. You could be mistaken for believing that Greece was being invited to the G8 summit next year.

All that looks good on paper, but no revenues are guaranteed. True, this year Greece saw a record number of tourist arrivals and increased revenues from tourism. But that was offset by a further plunge in construction and real estate sales. There was also a further decrease in public consumption. So why should 2015 prove any different?

The finance ministry also expects a 1.7 billion euro increase in revenues from direct and indirect taxes. Again, how can Staikouras be certain that taxpayers will be capable of paying that when more than a million Greeks owe taxes from previous years?

The fine print of the proposed budget shows cuts in public spending, especially in social security, health care and public investments. It also shows a slight increase in national defense spending.

The proposed 2015 budget looks a lot like a pre-election promise. It promises a lot to many. The figures offer a gleam of hope to the Greek people who have suffered a lot in the past few years. Words like “growth,” “raises,” “increase,” “surplus,” and “tax cuts” speak volumes.

You may notice something missing from the 2015 draft budget: the 9.2 million euros that Greece would have paid to the IMF next year. It seems that the government is determined to go to the international markets with the issue of seven-year and ten-year bonds instead of borrowing the funds directly from the IMF. It is a risky development that shows that Antonis Samaras wants to get rid of the unpopular IMF by the end of the year. It is a calculated political move that will probably earn him some points.

At the same time, the draft budget is an answer to the promises made by SYRIZA leader Alexis Tsipras during the International Trade Fair in Thessaloniki a month ago. Tsipras also promised a lot to many and he sky-rocketed in the polls. Samaras comes back with supposedly more realistic propositions. His budget is packed with contradictions. But, then again, so is all political talk.

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