State budget leeway is all but exhausted
Τhe measures the government announced on Tuesday on the subsidization of gasoline and diesel in the next quarter will almost exhaust the budget margin granted by the extra 362 million euros of tax revenues in May, as they are priced at €315 million.
In total, the government’s measures to address energy costs and price increases and to support vulnerable groups since the beginning of the year have reached an inconceivable amount of €8.441 billion, of which more than €5 billion is covered by the Energy Transition Fund and does not burden the deficit. The net cost to the budget, however, remains high, reaching €3.228 billion, over 1.5% of GDP.
A high-ranking source in the Finance Ministry, however, assured on Tuesday that the budget, even after the new measures, is within the target of the Stability Program for a primary deficit of 2% of GDP. Any future moves, the same source added, will be decided by assessing the situation month by month.
As Finance Minister Christos Staikouras stated, “We are responding to the challenges once again, utilizing the prudent execution of the budget.” Respectively, Alternate Minister Thodoros Skylakakis explained that the margin for these new measures was given by the following developments: the growth rate of 8.3% in 2021 and 7% in the first quarter of 2022; the satisfactory course of revenues that exceeded the target by €2.1 billion in January-May; and the first data on tourism, which are on a very good course.
Nevertheless, the prevailing uncertainty regarding future developments in fuel prices is keeping the financial staff alert, since the measures have been taken with specific assumptions, such as that the electricity price in the second half will be €225 euros per megawatt-hour. If prices are higher, the primary deficit target of 2% of gross domestic product will be put in jeopardy and this will not favor the government’s aim of investment grade.
The government has also announced fiscal measures, such as a permanent reduction in ENFIA (€370 million), an extension of VAT on transport, coffee and soft drinks, gyms and dance schools (€250 million), and the permanent reduction of VAT on animal feed and fertilizers to 6% (€30 million), totaling €650 million.
