How much the new support measures push the budget

By Tasos Dasopoulos

It will be more and more difficult after April to cover the support for accuracy, since despite the fact that the cash resources now reach 41 billion euros, the budget margins are becoming smaller and smaller.

This seemingly oxymoronic scheme is explained as follows: Greece has managed to have one of the highest cash flows among all the countries in the Eurozone. However, it is financially subject to spending cuts due to high debt and the deficit that has increased since 2020 due to the coronavirus. Yesterday’s package of support measures was priced at 1.12 billion euros. However, the € 636 million that will be allocated to subsidize electricity and gas bills is not included in the deficit and debt, as it comes from the account of revenue from pollutant rights that is off-budget.

Therefore, the part of the measures that has a financial “footprint” of the whole program is 484 million euros. Of this, € 324 million is available for the emergency allowance for financially vulnerable households, ie the so-called “accuracy check”. The remaining € 166 million is available for the electronic fuel subsidy, the special diesel subsidy, the € 200 bonus for taxi drivers and measures for farmers.

The margin for the package gave the best expected revenue trend for 2021. The excess of tax revenues, amounting to about 2 billion euros, was accompanied by a significant increase in tax revenues by 570 million euros for the first two months of 2022 However, the continuation of the good course of income is doubtful, as high inflation has begun to affect household incomes on a more permanent basis.

For this reason, after all, the Government started discussing yesterday in the Parliament the bill for the reformed ENFIA that will deduct from the tax obligations of the households 350 million euros, while at the same time it accelerates the procedures for the payment of the second increase of the lower salary in May, originally scheduled for September.

Difficult to continue

However, continuing to subsidize gas and electricity bills will become more and more difficult month by month. The first reason is that the account reserves will gradually be depleted by the pollution rights. This situation will lead (unless there is some central intervention from Brussels) to the point where budget money is used to cover subsidies.

At this pivotal point, Greece will have to decide whether to reduce the subsidy, shifting more burden to households and businesses than increases in electricity and gas, or lead to fiscal derailment. In other words, it will subsidize energy products, knowing that this will increase the debt in a period of high interest rates, as well as the deficit.

In fact, the fiscal space is expected to be further reduced in May or June by the intention of the Ministry of Finance to extend until the end of the year the low VAT rates enacted in June 2020 in catering, tourism, transport, theaters and cinemas. To cover the measure will need a budget margin of about 270 million euros, which will be deducted from the margins for other interventions.