The arithmetic behind the ‘growth dividend’

By Tasos Dasopoulos

The distribution – or not – of the “growth dividend” will be a political decision, which is expected to be taken in early December when there will be an even better picture of the course of the economy in 2021

The main argument of those who claim that the allowance should be given is that the economy is recovering rapidly, with growth – after three revisions – now estimated at 7%, and perhaps higher, in 2021. Therefore, there is room to distribute a emergency allowance, in the sense that this growth should be disseminated to the economy and especially to the economically weaker.

Following the introduction of a double guaranteed minimum income for low-income households, only the low-income pensioners who did not receive retroactively remain “unprotected” from the state protection net. However, they number around 1.3 million euros. Therefore a considerable amount of money should be allocated to make an extraordinary allowance at the end of the year.

Indicatively, an allowance of 400-500 euros would cost from 520 to 650 million euros. The positive thing is that if this amount is given close to the holidays, it will be spent in its entirety on consumption and -in part- on public coffers. The question is whether it is appropriate to now have an equal widening deficit, which will reach 10% of GDP this year (excluding the “growth dividend”).

Those who – and through the financial staff – are inclined not to give this allowance, rely on the fact that the economy is not yet “growing”, but “recovering” after a serious crisis such as the coronavirus. In strictly economic terms, Greece will recover the loss of 9% it had in its GDP in 2020, the first quarter of 2022. From there on, one can talk about “growth” of the Greek economy.

In addition, they point out that the “duo” of pandemics and constant price increases requires vigilance and resources in readiness for new support measures. In this direction, they also mention the assistance to the fire victims of the summer amounting to 500 million euros, which also needed an extension of the Budget expenditures. Very recently, the € 620 million package to halt price increases was announced. Even if most of the price increase package is covered by the proceeds from the auctions of the pollution rights, no one can assure that even more resources will not be needed before the end of the year.

Also, “open account” is the effects of the continuation of the pandemic. YPOIK may resist the request of the focus for new support measures due to the restrictions for the unvaccinated, but leaves it open for the next or the following month if there is indeed a decrease in the turnover in the sector.

The essential questions

The main question is whether the Ministry of Finance (and the Government) will want to proceed with the payment of this extraordinary allowance accepting an additional burden on the deficit, which will reach 10% in 2021. The Ministry of Finance will find in front of it any increase in 2022 , when a major fiscal adjustment should be achieved. In addition, it will be relatively difficult to explain such a move to the Institutions (mainly the European Commission and the ESM).

This is due to the fact that the absence of a target for the primary surplus for both 2021 and 2022 (due to the maintenance of the overall escape clause) allows measures to meet the needs created by the pandemic and -recently- the price increases of energy products. But not extraordinary allowances, which will not aim to meet a need, but are given for political reasons. The opinion of the Institutions will count as Greece continues to be in a state of enhanced supervision.