Clients Only

Chart of the month

Greece’s fiscal shortfall

Tim Congdon, Economic research, macroeconomic forecasting

Greece’s public finances are in a parlous state as the chart above shows. These figures compare January 2014 with January 2015, the month in which a General Election was held in the country, which was won, as widely anticipated, by the radical left-wing Syriza alliance.

Syriza campaigned on an anti-austerity platform, vowing to reverse some of the tax rises introduced by the previous government as part of the conditions for receiving a bailout. These promises included raising the tax-free allowance and scrapping a property tax. However, even before the new administration had a chance to put its policies into effect, tax revenues have plunged. Income tax, which yielded €988 million in January 2014, brought in a paltry €519 million a year later, a drop of over 45% and barely half the €998 million target. VAT revenue also fell from €1,622 million to €1,329 million over the same period, whereas the target was an increase to €1,687 million. Ironically, revenue from the hated property tax was up on January 2014, although still below target.

The Greek tax collection agencies have never been particularly effective and it seems that some citizens have pre-empted Syriza’s pledges and just not paid their taxes. Remarkably, in spite of this serious shortfall, the government managed to run a primary surplus, albeit far smaller than a year ago – an indication of just how drastically the Greek government has been forced to cut back public spending. However, such a fall in revenue bodes ill for the months ahead when repayments of several loans from the Troika fall due. The country’s public debt to GDP ratio rose from 129.6% in 2010 to 174.9% four years later under a government seemingly committed to the austerity programme. Given Syriza’s desire to spend more while raising allowances, it looks increasingly unlikely that the country will be able to avoid a default on its debt at some point – perhaps not that far away – in the future.

Contact address: International Monetary Research Ltd., Huntley Manor, Huntley, Gloucestershire GL19 3HQ

Recommended links:   The Bruges Group

Website developed by AJB Web Design Cornwall