Budget 2018: Record primary surplus, stunning growth via €2.2billion cuts and new taxes

Greece’s government submitted the Budget 2018 to the Parliament late Tuesday. The Budget 2018, the last ‘bailout’ budget, targets a record primary surplus of 3.82 percent of GDP and a stunning growth rate of 2.5%. How will these will be possible? With 2.2 billion euros in new taxes and welfare cuts.

• additional taxes of €951 million, of which €478 million will come from direct taxes and €473 million from indirect taxes.
• cuts worth €774 million in hospital subsidies, National healthcare system (EOPYY)  and other public sector bodies
• cuts of €1.275 billion in overall primary expenditure
  

The Finance Ministry reassures that fiscal efforts already made, lifting of economic uncertainty and a significant improvement of economic climate were adequate factors for the safe execution of budget 2018 goals.

Primary surplus — the budget balance before debt repayment — is higher than previously estimated: at 2.44% in 2017 including €1.4billion in social dividend and 3.82% in 2018. Original target was 3.5%.

Growth The Greek economy is forecast to grow by 1.6% in 2017 and by 2.5% in 2018.

Budget 2018 estimates an economic growth rate of 1.6 pct this year, with the country’s GDP rising 178.579 billion euros, rising to 184.691 billion in 2018. This prediction is based on a positive contribution from private consumption (up 0.8 pct of real GDP), speedier increase in employment and a continuing decline in unemployment. Also a positive contribution from gross fixed capital formation (by 1.4 pct of real GDP), expected to grow with double-digit rates because of a more favourable investment environment, a further improvement in the real deficit of the balance in goods and services, by 0.2 pct of GDP, amid increases in export and import activity.

Private consumption is projected to grow by 1.2 pct in 2018, after a 0.9 pct increase this year, while public consumption is projected to rise by 0.2 pct in 2018 from +0.9 pct this year. Private investments are expected to grow by 11.4 pct next year, from +5.1 pct in 2017, while imports are expected to grow by 4.6 pct and exports to grow by 3.8 pct in 2018.

The unemployment rate is projected to fall further to 18.4 pct in 2018, from 19.9 pct this year.

The harmonized inflation rate is to slow to 0.8 pct in 2018 from 1.2 pct in 2017. The country’s public debt is expected to rise to 179.8 pct of GDP in 2018 (332 billion euros) from 178.2 pct of GDP (318.3 billion) this year.

With the size of the Greek economy reaching 185 billion euros ($271 billion) in 2018, the national debt is set to remain at just under 180 percent of gross domestic product, roughly unchanged from the previous year.

Cuts and Revenue increases

Budget 2018 foresees:

• cuts worth €238million through scrapping the poverty allowance for 140,000 low-pensioners.
• Increases in social security contributions for self-employed and free-lancers. As of 1.1.2018 constitutions will be calculated on the basis of the sum of the taxable income and the contributions paid in 2017.
• Target of revenues from property tax (ENFIA) remains €2.65 billion. Objective values are expected to re-calculated however this will charge some 500,000 property owners with higher taxes.
• Scrapping of 1.5% tax discount in monthly withheld tax for more than 1.5million employees and pensioners with annual income over €9,000
• Cuts and new criteria for children allowance for families with more than two children.
• Scrapping of tax discount for medical expenditure for 1,000,000 taxpayers. Total win for the state: €120 million. The discount will still apply for employees, pensioners and farmers.
• Scrapping the 30% discount in Value Added Tax for the all islands. 17% V.A.T. will increase to 24% and 9% to 13%.
• Cut the heating allowance by 50%.
• Tax levy in hotels and rooms to let-apartments.

The government still struggles to manage the taxation of property owners who rent via Airbnb.

Lawmakers will vote on the 2018 budget on Dec. 22, following a four-day parliamentary debate. [ap, amna, in.gr, newsit]

majority of these austerity measures were signed with the third bailout in 2015.

PS In budget 2018 there is not any prediction about the poverty growth. Greece had the European Union’s fastest growing rate of poverty during its protracted financial crisis.