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Draconian measures to provide 14 billion euros in 2011 budget

19 November 2010 / 11:11:50  GRReporter
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Hotel services and medicines will be subject to 6.5% VAT instead of the current 11% VAT from 2011 on. The good news following the 2011 budget announcement end here because the average VAT of 11% will increase to 13% as of January next year. Much of the goods will be transferred to the group charged with 23% VAT. These are just some of the surprises that the Finance Minister George Papakonstantinou revealed to reporters at press conference to present the next years’ final budget.

The overall objective of the government is to reduce the budget deficit from 9.4 percent of GDP this year to 7.4 percent of GDP by the end of 2011. In total, the spending and revenues difference should be five billion euros between from nearly 22 billion euros today to 17 billion by the end of the next year. Although the reduction of the budget deficit is only five billion, fiscal consolidation measures in 2011 reach 14.4 billion euros. The huge difference is imposed by the rapidly growing recession, ‘which will eat up part of the collection of public finances,’ said George Papakonstantinou. Rescue parachute of 9.5 billion euros is needed because of Greece’s obligations to pay around 1.7 billion euros interest to foreign creditors in 2011. The third reason is that there will be increase in some wages costs in the public sector next year.

George Papakonstantinou said that the economic measures for 2011 have three levels. The first are those imposed back in 2010 and are worth 2.65 billion euros - cuts in wages, pensions and budgets of public institutions and increase in taxes and excise duties to date.

The second level contains the measures set for the next year as cuts in the budgets of municipalities after their reorganization under the Kalikratis law. Additional cuts in operating costs of institutions and change in civil servants wages formation, together with the repeal of increases in monthly income that was mandatory to the previous year. These measures will save the government 5.5 billion euros on the expenditure side. Total 4.05 billion euros are planned on the revenue side, including raising the average VAT from 11% to 13%, alignment of excise duty on heating and transport fuel. There will be special taxation of profitable companies with annual turnover exceeding € 100,000 (according to unconfirmed information) next year.

The third level are the new measures, which were not originally planned for 2011, but will enter into force so that the socialist PASOK government to able to decrease the deficit as agreed in the Memorandum of financial support. The new emergency measures are focused on rehabilitation of public enterprises and organizations, reducing the costs of health care facilities and drug supplies and social security funds restructuring. The government also plans to cope better in the fight against tax crimes by reorganizing the operation of the regional tax offices in certain municipalities according to their needs. The emergency measures are expected to collect 2.28 billion euros in the treasury.

Striking is the case of eleven state-owned enterprises. Papakonstantinou pointed out five of them that have wage costs of about 90% of their total revenue. According to data provided by the Ministry of Finance, the deficit of these enterprises has increased by 31% for the period 2007-2009, which cost the state 1.7 billion euros. "This amount is equal to the cuts of pensions and salaries which we introduced in 2010," said  George Papakonstantinou indignantly. Loans to these public enterprises reached 12 billion euros, which is eight times more than their total annual revenue. "The average wage in five state enterprises in 2008 was 44% higher than the average public sector wages and 100% higher than the average wage in the private sector," said the minister. The government is planning the restructuring of these enterprises to save 800 million euros and to collect another 680 million euros from state property utilization.
 
The situation in healthcare sector is not better as costs per year reach 13 billion euros, or 5% of GDP. Only five billion of this expenditure in the public health system are for medicines, which is almost 90% of total drug costs in the country. According to the Ministry of Finance, costs have been renegotiated four times in the last 13 years as the last year’s is the largest in size – 6.2 billion euros. Papakonstantinou’s ambitious plan for 2011 provides these costs to be cut by about 3.8 billion euros to put an order in spending on healthcare.

Tags: EconomyMarkets2011 budgetVictoria Mindova
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