Rise in energy prices leaves limited room for other types of support or tax cuts

The continuing steep rise in the price of natural gas, which reached €290 per megawatt-hours on Monday, is a major obstacle to the government’s spending plans for the rest of the year and the start of the next one, which will also be a year of, most likely, double elections.

Kathimerini understands that Finance Ministry officials estimate that, to maintain the same level of subsidy in electricity bills, budget outlays will reach between €600-€700 million in September, compared to €250 million in August. Combined with money from the International Energy Agency’s Energy Transition Fund, spending on electricity support will reach €2 billion in September from €1.1 billion in August, Finance Minister Christos Staikouras said in a radio interview on Monday.

Ministry officials hope that funding needs for the support scheme will decrease in the last three months of the year, as the end of peak season results in reduced electricity consumption.

Even then, the cost to the budget of electricity price support in the second half of 2022 will be double the initial estimates.

It is obvious that this means a far more modest spending package to be announced by Prime Minister Kyriakos Mitsotakis in his keynote speech at the Thessaloniki International Fair on September 10. As Staikouras noted on Monday, the extra fiscal space created by unexpectedly high tourism and tax receipts will be used mainly on these subsidies, limiting the scope of other actions.

If tourism revenue matches that of 2019, the last year before the Covid-19 pandemic and a record year in itself, with €18 billion in revenue, the extra fiscal margin is estimated at €1.3 billion.

Alternately, the government could choose to revise its estimate of the primary fiscal surplus, which excludes debt servicing, to higher than the advertised 2% of GDP. Doing so, however, could jeopardize a major government aim for 2013: regaining investment-grade credit ratings.

This makes the prime minister’s TIF speech a puzzle which is almost constantly rearranged. So far, a second round of cost-of-living checks remains highly likely, but not so much a third “fuel pass” round, given that the price of gasoline is dropping.