Solving the subsidy puzzle

The government is considering two sets of handouts: one for the rest of the year, which will be dealt with through the supplementary budget, and one for 2023, which also happens to be an election year.

The trouble is that the spending list keeps growing. And if the government claims that better-than-expected revenue and growth make the supplementary budget fiscally neutral, the piggy bank for next year adds up to an estimated €5.5 billion. And this under the assumption that no more pandemic support measures will be needed; this year alone, €720 million was spent on a variety of health equipment.

In 2023, Greece must also make a fiscal adjustment of €5.5 billion, through a combination of spending cuts and added revenue, that will allow it to return to the budget surpluses negotiated with its creditors.

And, since very little appears to be a candidate for the chopping block, economic growth and the resulting added revenue must bear the weight of adjustment.

Finance Ministry officials are at present busy trying to solve the puzzle, and to determine the cost of the support measures for 2023.

One great unknown is the sum that will be spent on subsidizing households’ and business’ electricity bills, given the decision to limit charges to around €0.15 to €0.17 per killowatt-hour. This translates into about €1.2 billion per month, with €300 million coming from the budget. This could mean almost €1.8 million from the budget for the first half of 2023 alone, without any guarantee that the energy markets will return to anything approaching normality in the second half. Will Russia cut off natural gas entirely? And will Europe make a coordinated response?

The heating fuel subsidy is also dependent on the whims of the energy markets, but it is widely accepted that the €170 million provided during the 2021-22 winter will not be enough.

Also the end of the so-called solidarity contribution will cost the budget some €1.08 billion in revenue. Likewise, the promise to further reduce social security contributions will also leave a revenue hole exceeding €1 billion.

And the extra spending does not end there. The government has promised yet another raise in the minimum wage and pension rates.