Finance Ministry’s Plan B to avoid automatic cuts

The Finance Ministry is preparing an alternative plan to tackle any problems in the implementation of this year’s budget that might trigger the automatic fiscal adjustment mechanism.

This Plan B provides for introducing certain tax measures at earlier dates than originally scheduled – such as the abolition of tax exemptions and raising the tax on fuel – and reviewing public sector expenditure.

Depending on how much comes into the state coffers, the ministry will decide which taxes should be implemented earlier – i.e. in October 2016 instead of the coming years. Although the ministry was happy with the budget data from the first five months of the year, fears have been expressed regarding the level of takings from taxpayers based on the significant reduction in salaries and pensions. The first income tax installment is due at the end of July, while the first Single Property Tax (ENFIA) payment is supposed to be paid in September.

Ministry officials estimate that the tax and labor measures set to apply from the second half of this year will create major problems in the economy and therefore to the state budget. They believe that nonperforming loans will expand further and consumption tax revenues will shrink as a result of the new value-added tax rate and the drop in disposable incomes.

Among the emergency measures currently being examined is bringing forward the fuel tax hike from January 1, 2017 to October 1, 2016. The increase will apply to the special consumption tax on unleaded gasoline, diesel and gas.

In order to create a safety cushion, the government is starting a pilot program for cutting costs at three ministries, with savings ranging from 5 to 20 percent. The program will start at the ministries of Economy, Finance and Culture, and will also concern the entities they supervise.

A government official who is in close contact with the country’s creditors says that out of the 70 billion euros of general government expenditure, a significant amount could be saved through a spending review.