Cost of government’s handouts exceeds fiscal leeway

The government handouts announced last week extend beyond the fiscal leeway allowed by the 2019 budget, according to a report by the State General Accounting Office that is attached to the relevant amendment tabled on Monday.

The interventions on value-added tax and on pensions amount to 1.27 billion euros, while the primary surplus overrun, according to the government, amounts to 1.14 billion euros. The costs may actually expand further, as the Accounting Office has been asked to assess the cost of a possible VAT rate cut on coffee too, both in service and in retail sale, as it currently remains in the highest VAT bracket of 24 percent.

Therefore, not only is the government removing the safety cushion for 2019 that would have been set aside for any unforeseeable circumstances, but there is an excess in costs over the fiscal leeway that amounts to 0.6 percent of gross domestic product. If coffee is added to the measures and its VAT is reduced to 13 percent, the additional costs to what the budget allows for would range between 210 and 250 million euros this year.

This, meanwhile, is based on the government’s assumption that the fiscal leeway in 2019 will actually come to 1.14 percent of GDP. If the primary surplus overrun proves any smaller, as Greece’s creditors as well as other technocrats reportedly fear, the impact on the budget from the handouts will be even greater.

What is of particular concern to the creditors is the absence of a safety cushion that would cover any court decisions concerning retroactive payments to pensioners and civil servants. This was, in fact, one of the reasons why Alternate Finance Minister Giorgos Houliarakis disagreed with the package announced last Tuesday by Prime Minister Alexis Tsipras.

The Accounting Office report also argues that the lost revenues in 2020 from the VAT rate cuts will come to 667 million euros, taking the total cost of the measures for next year to 1.5 billion euros. Next year’s additional interventions would take the total cost to 3.4 billion, against a leeway of just 800 million euros.