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On Monday, the Ministry of Finance will submit the draft budget for 2014 to Parliament, according to which there will be a surplus in 2013 and 2014. This draft budget, however, will dramatically change the final plan that will be submitted to Parliament in mid-November and will bear the stamp of the Troika, hence the new measures, since foreign reviewers have already discovered financial losses for 2014. The draft budget reflects the expectations and objectives of the government, which will not be changed in the final plan and provide a 4% recession this year (from -4.2% to -4.5%, as was initially expected) and 0.6% development in 2014.

The Ministry of Finance foresees a budget surplus both for 2013 and 2014, which will be “small” and reach 1.5% of GDP, or 2.8 billion euro in 2014. The government aims at the achievement of a primary surplus of 0.3% of GDP or 489 million euro.

For 2014, the goal of the programme is 1.5% of GDP (2.8 billion euro), and the purpose of the revised medium-term programme is quite optimistic - 2.4% of GDP or 4.5 billion euro. New measures are not mentioned, but the collection of revenues and cost reduction, which is provided, will be based on the already regularised measures that will be implemented next year.

According to the medium-term programme, measures are provided in 2014 for the increase of revenues and reduction of costs totalling 3.7 billion euro.

Tax measures that will be imposed in 2014 will amount to 1.5 billion euro, and the collection will come from:

• Employees and retirees who will be levied with increased taxes in 2014 because of the repeal of tax exemption (for rent, school fees, etc.), except for medical expenses, alimony upon divorce and donations to the state;
• An increase of taxation of sole proprietorships and liberal professions - these will be taxed at a 26% ratio from the first euro to the first 50,000 euro and by a factor of 33% for the excess amount.

Budget expenditures for 2014 will be also reduced via cost reductions in all categories:

• Pension costs will be reduced by 420 million euro due to an increase in the retirement age of two years;
• Health care costs will be reduced by 620 euro (a 422 million reduction in pharmaceutical expenditures of insurance funds, the introduction of a 25 euro ticket for access to hospitals and a reduction in hospital costs by 95 million euro);
• Salary costs will be reduced by 260 million euro due to the reduction of salaries of employees involved in the mobility programme, the suspension of salaries of laid off employees and a reduction in the number of substitute teachers;
• Defence spending will be reduced by 100 million euro via the cancellation of military supplies;
• Funds for social benefits will be reduced by 78 million euro mainly due to the payment of social security contributions for social solidarity only to pensioners over 65;
• Financing of state organisations will be decreased by 180 million euro;
• Restructuring of the public sector will reduce costs by 378 million euro, of which the costs for primary and secondary education will decrease by 150 million euro;
• Funding of higher education institutions will be reduced by 33 million euro.

Not enough

The first phase of the inspection by the Troika showed that concrete measures are not sufficient to achieve the primary surplus and made it clear that new measures will be required.

The government will have to take additional measures in order to cover losses resulting from the possible disapplication of:

• The reduction of pensions for military because of the new payroll table, which will save 162 million euro. If the government insists that pensions of retired military should be excluded from cuts, then it will be forced to look for proxy measures that will affect other categories of citizens;
• The 25 euro ticket in hospitals, which is expected to bring 115 million euro. If not applied or large categories of people are excluded, then the loss will be covered through other sources.

Informing the Prime Minister

Finance Minister Yiannis Stournaras informed Prime Minister Antonis Samaras on the content of the draft budget last night. Before that, representatives of PASOK were informed by Deputy Minister of Finance Christos Staykouras on the topic.

Insurance funds - the biggest concern of the Troika

Gaps in insurance funds that have not been reduced as provided by the medium-term programme, despite reductions in pensions and services, are causing the greatest concern to reviewers. The Troika recognises that there is a gap of more than 1 billion euro, which could reach 5 billion by 2016, and of course, calls for measures, among which cuts in bonuses and probably the issue of a further reduction in basic pensions will also be brought up.

Another problem for the government is the issue of the reduction of pensions of new pensioners of liberal professions, provided that no means have been found in order to cover the reduction of payroll taxes by 3.9 points by 2016, which will lead to a reduction of revenues of insurance funds by 1 billion euro.

Furthermore, the Troika is putting on pressure in terms of the coverage of losses from the application of the special tax for companies to the benefit of insurance funds of liberal professions.