ATHENS–The Greek government submitted a draft 2015 budget on Monday that aims to cut taxes and ease austerity measures in an effort to boost its flagging popularity amid speculation it may face snap elections early next year.
Following six years of a deep recession–made worse by waves of austerity measures aimed at fixing its public finances– Greece's economy is expected to grow 2.9% in 2015, up from a forecast 0.6% rate this year.Despite the tax cuts, the government says it will post only a minor budget deficit of 338 million euros ($423 million)–equivalent to just 0.2% of gross domestic product–next year, in effect marking the first balanced budget Greece has produced in four decades.
With its public finances improving and the economy returning to growth, Greece's two-party coalition government has said it hopes the country will soon be able to free itself from the onerous oversight of its troika of international creditors, who have pledged some EUR240 billion over the past five years to bail out the country.
"With hard work, self-confidence and with dignity, we have an obligation to transform the current economic stability into strong and viable growth, and that includes social cohesion," said Deputy Finance Minister Christos Staikouras.
The government's popularity has suffered recently as it has pressed ahead with unpopular reforms, particularly a new property tax. According to public opinion polls published in September, Greece's opposition left Syriza party would edge out New Democracy–the party that leads the coalition–by between 2 1/2 and eight percentage points if elections were held now.
Holding a slender majority of four seats in Greece's 300 member legislature, Parliament is expected to pass the budget when the final version comes to a vote, most likely in November. But the government's biggest challenge will be the election of a new president early next year.
Greece's president is elected by Parliament every five years and must be approved by a supermajority of at least 180 votes. The coalition doesn't have those votes and if it fails to garner the support of smaller parties and independent lawmakers, it will be forced to call early parliamentary elections.
In an effort to rally support, and amid ongoing talks with the troika, the coalition last week called for a vote of confidence, with Parliament expected to decide on the motion over the weekend. And early last month, Prime Minister Antonis Samaras announced a series of tax cuts, including a 30% reduction in the taxes on home heating oil and on a so- called solidarity tax on personal income. The draft budget also includes measures to ease social security contributions and extend payment deadlines for those owing money to the state.
After years of foot-dragging, Greece has started to meet the fiscal and reform targets set out by the troika–made up of the European Commission, the International Monetary Fund and the European Central Bank. In 2013, the country produced its first primary surplus–not including debt payments–a year ahead of schedule.
Based on budget data for the first eight months of the year, Greece is on track to produce a better-than-expected primary surplus this year as well. For 2015, the budget foresees a primary surplus equal to 2.9% of GDP, broadly in-line with a 3% target set by the troika.
"The government is resting on the results of previous months," said Nikos Magginas, a senior economist at National Bank of Greece. "It could reach its targets even with a milder growth rate given the progress already seen in fiscal performance."
The better fiscal performance has helped Greece win plaudits from its European partners and the financial markets. Following a four-year hiatus, Greece returned to the international debt markets earlier this year with the issuance of a five-year and three-year bond, and is expected to issue a seven-year bond as early as next month.
In 2015, Greece plans to swap out some of its existing debt instruments with new issues, according to the draft budget, as well as issue longer-dated maturities of more than five years duration.
