ATHENS – While simultaneously seeking debt relief, Greece’s ruling Radical Left SYRIZA-led coalition has presented a 2018 budget to Parliament claiming the country is returning to bigger-than-expected growth.
The budget also declared a primary surplus of 3.8 percent of Gross Domestic Product (GDP) to go with a growth rate of 2.5 percent, although acknowledging a raft of more harsh austerity measures that will whack Greeks with another 1 billion euros ($1.17 billion) in more taxes after Tsipras hit them with an avalanche of tax increases this year.
The primary surplus doesn’t include the cost of interest on 326 billion euros ($382.61 billion) in three international bailouts, nor running cities and towns, social security, state enterprises and some military expenditures.
It was also built partially on delaying or not paying bills and the country’s vendors, what critics said was an accounting trick to show the economy is better off than it is – which Tsipras indirectly has admitted by seeking a debt break from the Quartet of the European Union-International Monetary Fund-European Central Bank-European Stability Mechanism (EU-IMF-ECB-ESM).
In a report accompanying the budget, the Finance Ministry looked forward to an “exit from a long period of programs of macroeconomic adjustment,” referring to Greece’s anticipated exit from its third foreign bailout at the end of August next year, unless fiscal targets are not hit, which could trigger an automatic cutter and need for a fourth rescue package.
The budget – which is to be voted on in Parliament on December 22 – foresees a primary surplus of 2.4 percent of GDP for this year, far above a target of 1.75 percent, which Tsipras has jumped on to give holiday bonuses to pensioners whose benefits he’s cut far more than the handouts.
“The significant overshooting of the targets… has contributed to restoring international trust in Greek public finances and created the preconditions for the country’s return to international capital markets in a sustainable way,” the ministry crowed in its report.
The handouts, the budget said, would be given to 1.4 million households, a move the major opposition New Democracy Conservatives said was aimed at buying votes as Tsipras and SYRIZA have plummeted in polls after reneging on promises to reverse austerity measures.
The handout is worth an average of 483 euros ($566,) the ministry said, adding that a projected increase in growth rates would allow for further givebacks to workers, pensioners and the poor who have borne the brunt of the crisis while politicians, the rich and tax cheats have largely escaped.
The budget also includes a list of 12 measures that were passed in Parliament earlier this year but have yet to be implemented, including hikes in social security contributions, cuts to heating and oil subsidies, higher tax rates for medium-sized and large properties, the elimination of Value-Added Tax (VAT) breaks for dozens of Aegean islands Tsipras vowed to help, and an additional tourist tax on visitors staying in hotels, which the industry said could undercut hopes of another record year in 2018.
The government hopes that the 12 measures will raise around 1 billion euros ($1.17 billion in revenues although hikes this year have caused a spike in tax evasion as more people are trying to find ways around the onerous measures.
The business newspaper Naftemporiki detailed the 12 measures it said will hit the most vulnerable sectors of the country again, a group that Tsipras promised to safeguard.
– A 10-percent reduction in a discount on taxes imposed for medical expenditures, assuming that this spending exceeds, by 5 percent, a taxpayer’s total annual income. The government expects to gain 121 million euros ($141.01 million).
– Another tax break linked to the clearance of tax statements by wage earners and pensioners will also be abolished, with the benefit for the state at 68 million euros, about $79.81 million.
– A reduction, by 50 percent, of the subsidy allocated every year for heating oil purchases by lower-income households, which is expected save 47 million euros ($55.16 million,) breaking another promise.
– A tax aimed at short-term property leasing, essentially an “AirBnB tax”, which will tack on such income on a taxpayer’s total yearly income for tax purposes, up to 45 percent.
– Abolition of a tax break linked to Parliament deputies’ remuneration as well as the salaries of judicial officers (judges, prosecutors etc.), a measure expected to save the state 44 million euros ($51.64 million) which affects only a relatively few people.
– The overnight stay tax at hotels, starting at 50 euro cents a room and going up to 4 euros ($4.69) a day. The tax was announced in 2016, but was suspended for a year due to significant opposition by tourism professionals in the country.
– An increase in the VAT rates for 32 eastern Aegean islands, which previously enjoyed a lower VAT regime compared with the rest of the country. As such, the lowest rate will go from 5 percent to 6 percent; the medium rate from 9 percent to 17 percent, and the highest rate from 13 percent to the “Scandinavian” level of 24 percent.
– A return of a 15-percent tax on “surplus value” from real estate transactions, taxing the profit derived from the difference between the original purchase price and the subsequent sale price. The tax, which most analysts expect will generate meager results, given a burst “property bubble” in the country and continuing low demand in non-tourism urban areas, burdens the seller.
Extension, by a year, of a voluntary tax for shipping companies and shipowners, with a target of 107 million euros ($125.58 million) a miniscule fraction of their worth as the world’s largest in the industry, giving a break to oligarchs Tsipras said he would crush.
– Abolition of various welfare and unemployment benefits, expected to save the state’s coffers 12 million euros ($14.08 million) but hitting the country’s poorest.
– An increase in the already high monthly social security contribution rates for self-employed professionals, which has driven many to turn in their tax books.
– A stricter regime for imposing the rebate and clawback policies in state spending for pharmaceuticals and private health care forecast to save 188 million euros ($220.65 million).