Greece Aims to Cut Deficit to 7%
By NICK SKREKAS
ATHENS—Greece would cut its budget deficit to 7% of gross domestic product, ahead of the 7.6% target sought by international lenders, under a draft 2011 budget announced Monday by the finance ministry.
The country's fiscal gap in 2011 would be €16.35 billion ($23.53 billion), down from €18.5 billion this year, according to the documents.
In May, the debt-strapped Mediterranean nation promised to cut its budget deficit from 13.6% of GDP in 2009 to 8.1% by the end of this year in exchange for a €110 billion bailout from the International Monetary Fund and the European Union. The
draft projects that the 2010 budget deficit will come in at 7.8% of GDP, better than the 8.1% target under the IMF-EU memorandum.
The Greek government has had to impose unprecedented austerity measures—including wage and pension cuts, in addition to increases in VAT and excise taxes—which have led to widespread protests.
The 2011 draft budget continues these austerity policies.
It predicts revenue will rise 6.9% on a year-to-year basis to €56.3 billion, and expects spending will fall 5.9% to €67.5 billion.
The government will again impose the extraordinary tax on profitable Greek companies in 2011 for earnings derived within the country. This is expected to again hit the bottom line of listed companies, but the state hopes the measure will raise €1 billion in revenue.
By widening the tax base and raising certain goods and services to higher VAT-tier ratios, the government expects to collect another €1 billion. New betting licenses and royalties are expected to bring in a further €700 million to state coffers in 2011.
On the cost side, the public service is expected to cut a further €400 million. Savings from merging and streamlining local governments, and creating a unified civil-service payment agency will save €500 million and €100 million respectively.
There will also be a €300 million cut in state funding to the public-investment program. Local businesses had hoped this program would inject cash and stimulus to the recession-hit economy and alleviate the impact of higher unemployment.
The budget forecasts that the Greek economy will contract by 2.6% in 2011 after a fall of 4% in 2010. The general-government-debt-to-GDP ratio will increase to 145% in 2011, while GDP next year is expected to reach €232 billion at constant prices.
"The primary budget deficit will be virtually erased in 2011 as a percentage of GDP, coming in at €288 million," the finance ministry added.
(The Wall Street Journal)