What brings about the jump in the primary surplus – The mix of fiscal restraint and support measures

The impressive overperformance recorded by the primary surplus of 2023, which recorded approx twice the budget target performance [1,9% του ΑΕΠ έναντι 1,1%] unquestionably sends clear message to markets that the government’s commitment to fiscal discipline is paying off.

As it is also underlined in the announcement of Ministry of National Economy “this result sends a strong signal to the international markets that the Greek economy is strengthening and growing beyond the targets, despite the difficulties and extraordinary events that the country faced (natural disasters, international crises, dual national elections, etc.) during last year”.

However, it does not translate into fiscal easing nor in new aid measures for households according to its new fiscal rules EU which are expected to be approved today by the European Parliament.

Stability

As is now known, the new rules will define how any surplus achieved will not be converted into benefits but a “cushion” for emergency needs, with support margins no longer determined by primary surpluses but by the permitted increase in net primary expenditure.

“The key word is the stability. We must maintain the goals and apply the rules step by step,” he said the Deputy Minister of Finance responsible for fiscal policy Thanos Petralias, speaking at the 9th Delphi Economic Forum. “Planning is not based on primary surpluses, but on total annual government spending from which the country cannot deviate,” he argued. With today’s data, at the end of the year the… fund will be made and under conditions it will be decided whether some extraordinary support will be given to vulnerable households.

This year’s double goal

It is noted that this year a primary surplus of 2.1% of GDP must be achieved and the deficit must be reduced below 1.5% of GDP, which is the target for countries with high public debt. The specific fiscal result creates the conditions for a better starting point for achieving this dual objective, but it is still a big gamble in an uncertain environment full of uncertainties.

A generalization of the crisis in the Middle East could overturn the execution of the budget as it would require funds to support households from the spike in oil and natural gas prices.

Also in question is whether tax revenues will continue to pay off. The first figures of the budget for March reveal some irregularities in the field of tax revenues, ringing a first bell in the financial staff

Stability Program

For the time being, the Ministry of National Economy is preparing to file by the end of the month in Brussels the updated Stability programwith key tables covering the period up to 2025. It will be predicted lower growth rate for this year in relation to the budget targets, due to the anemic environment in the Eurozone, i.e. about 2.5% for this year from 2.9% and the same percentage for 2025 against a forecast for growth of 3%.

► Read also: G. Stournaras: Positive surprise of the Greek economy – Close to 2% of GDP the primary surplus in 2023

At the same time, inflation of 3% for the whole year and a primary surplus of 2.1% this year and 2.3% will be predicted. The information states that the program will be is simple text of only 5 pages which will include only the baseline scenario, with all fiscal measures that have been announced even if they have not yet been voted on. The economic staff has already announced measures for 2025, which will be included in the stability program.

The measures of 2025 – Pension increase of 2.55%

Most of the measures amounting to 400 million euros, concern the increase in pensionswhich is provided for in a law that stipulates their annual adjustment to half the sum inflation and development. Increases are expected to average 2.55%.

At the same time they are included the abolition of the pretense fee for self-employed professionals at a cost of 120 million euros in 2025, as well as the provisions for increasing the student housing allowance (15 million euros) and the suspension of VAT on newly constructed buildings (22 million euros).

From the other side, the reduction of insurance contributions by half a percentage point (cost 215 million Euros) is included in the pre-election program of the ND with implementation in 2025 and an additional half unit in 2027, while the permanent reduction of the tax on agricultural oil from 2025 (cost 100 million Euros) was announced by the government after the recent agricultural mobilizations.

If there are other fiscal interventions over a four-year period and alternative macroeconomic scenarios, it will be revealed in the autumn with the submission to Brussels of the Medium-Term Plan which will be drawn up on the basis of the new fiscal rules and the specific directions that will be given in June to each government by the Commission.

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