Solving the subsidy conundrum

Subsidizing the cost of electricity remains the government’s top priority. However, the uncertainty of global energy markets makes the cost of that measure a speculative exercise, which limits the margin for other support measures that Prime Minister Kyriakos Mitsotakis would like to announce in his September 10 keynote speech at the Thessaloniki International Fair.

The good news from the finance minister is the better-than-expected revenue streams from tourism and tax receipts.

Initially, ministry officials estimated that electricity support for households and businesses would cost €800-850 million in the second half of the year. It now turns out that this sum won’t be enough for even three months and the number of days until that speech in Thessaloniki is shrinking fast.

So far, the ministry has come up with some likely income support, or handout, scenarios. For example, protecting lower income households from the still rising inflation. The support can come only through direct payments, since cutting indirect taxes will not help contain price gains. So, a second round cost-of-living checks, similar to those sent last April, will be the preferred option. The estimated cost is €200-300 million.

Heating fuel subsidies will also be a major expenditure, since the 600,000 households using natural gas are set to get exorbitant bills from November if the current price levels, €240-250 per megawatt-hour, remain. Heating oil, on the other hand, is expected to be no pricier than during last season.

A third round of fuel passes for motorists is a possibility, but is no longer a huge priority, with unleaded gasoline dropping to an average of €2 per liter.

Electricity subsidies are also expected to weigh heavily on the 2023 budget, with the added complication that Greece is obliged to show a primary budget surplus, instead of the expected 2% deficit this year. And, crisis or not, the EU, Greece’s remaining creditor since it repaid the International Monetary Fund, is determined to hold the country to its obligations.

Even a €1.5 billion outlay for electricity subsidies just for the first half, will almost crowd out all other funding options. And the government has promised to raise pensions in this election year.