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Retroactive 10% cuts in government spending will bring 1.4 billion euro to the treasury

25 September 2013 / 20:09:09  GRReporter
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A 10% cut in 2013 spending which will bring nearly 1.4 billion euro to the treasury is the secret weapon of the Greek Ministry of Finance in order for it to achieve a primary surplus but also to maintain the levels of deficit. At the same time, the supervisory Troika has dampened the optimism of the Ministry of Finance for lower recession in 2013 and both sides have agreed on 4% instead of on the 3.8% requested by Greece.

According to sources, the joint assessment was for recession in the range of 3.9% but 4% will be recorded in the case of a possible mistake. The forecast for recession in the range of -4% is lower than the -4.2% and -4.5% previously estimated by the Ministry of Finance and the Troika respectively, which facilitates the achievement of the deficit as a percentage of the gross domestic product (GDP) and, at the same time, is a base for better forecasts for 2014.

Next year's medium term forecast is for 0.6% growth which may be revised to 1%. Similar adjustments will be made for the period 2014-2017 too.

Budget cuts

The Ministry of Finance will use the opportunity provided by law, namely to cut the budgets of individual ministries by 10% in the event that there is a risk of not achieving the objectives in the budget.

The Ministry has already deducted significant portions of the funds (1.9 billion euro for the first 8 months of the year), which it should have granted to ministries, local governments, legal entities, etc. The withheld funds could be paid in the second half of the year if the implementation of the budget meets the targets set, which means that their allocation to the beneficiaries is not certain.

However, since the revenue is lagging behind (with 730 million euro in the first 8 months of the year) and filling the gap by the end of the year is in question, all differences will be covered by cuts in spending.

The total amount of the regular budget is 45.2 billion euro. However, the cuts will not include payroll costs (the salaries and pensions in the public sector), amounting to 18.6 billion euro as well as the grants to insurance funds, the total amount of which is 12.6 billion euro. As for the funds, they do not allow any cuts as the state of their revenues is worse than expected and they are experiencing serious financial difficulties which is giving rise to new scenarios for reduction of pensions and benefits.

Therefore, the amount of the funds to be cut is 14 billion euro and reducing them by 10% would save the treasury 1.4 billion euro or 0.8% of GDP.

Within this context, a decision of Secretary General of the Ministry of Finance Christina Papakonstantinou stipulates that, by the end of 2013, the budget funds which will be allocated to ministries, decentralized administrations and regional governments will amount to 90% of the budget planned for the financial year 2013.

In particular, depending on the pace of revenue, the issue of the size of the cuts in the public investment programme will be resolved in the last quarter of the year too. Funds to the amount of 1.3 billion euro were deducted from the programme and were not allocated in the first 8 months of the year and, according to sources, the final reduction may amount to 1 billion euro.

Continuous pressure

The pressure exerted by the supervisory Troika for strict cost control of all state bodies and institutions is leading to preventive and repressive measures in order to prevent overspending in the budgets of ministries, government structure enterprises, government institutions and local authorities.

Those ministries that are spending more than provided in their budgets will be punished by having their subsidies cut by the amount of the registered overspending. Regarding state structure enterprises, the salaries of administrative staff will be cut whereas in local governments, the cuts in costs will go along with an increase in the local taxes in order for the overspending to be offset.

In this connection a procedure has been enforced according to which the Ministry of Finance and the rest of the ministries will sign by 31 December each year separate memoranda to ensure the smooth implementation of the budget and their sound financial management. These memoranda will include:

Quarterly targets for the implementation of the budget of each structure.

Predetermined corrective actions in the case of deviations from the targets.

Consequences in the case of a failure to complete the corrective actions.

The time and type of the financial reports submitted by each structure.

At the same time, by 15 December each year, each ministry will submit to the Chief Accounting Department a monthly plan for the implementation of its budget. All legal entities and other public institutions will have to submit such a plan by 31 December each year.

The end of subsidies

From next month onwards, the Ministry of Finance will suspend the state funding of structures with a budget of over 1 million euro which are not entered in the "register of debts" in order for it to be able to monitor more effectively their financial management.
 
At the same time, in order to control more effectively the spending of the Ministry of Health, as of October 2013, pension funds, employment funds, hospitals and the National Organization for Healthcare Provision will be required to submit monthly reports in compliance with the standards agreed with the Chief Accounting Department. These standards will make the social budget more transparent by showing the monthly cash flow, the receivables and payables as well as the cost of overtime.

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