Budget draft for 2016 includes more taxes and pension cuts

The draft of the budget for 2016 that was submitted in Parliament on Monday includes additional taxes and expense cuts for…

The draft of the budget for 2016 that was submitted in Parliament on Monday includes additional taxes and expense cuts for pension funds, which will result in pension cuts.

The fiscal targets, as revised by the Minister of Finances Euclid Tsakalotos, call for 418-million-euro primary deficit (0.24% of GDP) for the general government budget in 2015, while in 2016 the draft provides an 894-millio-euro primary surplus (0.5% of GDP). With a 1.3% of recession and 25.8% unemployment rates for 2016, the government will focus its intervention on tax policy and social insurance.

Additional taxes

The Finance Ministry’s draft estimates that the regular budget revenue will amount to about 49.5 billion euros, up by 0.8% (1.4 billion euros) compared to initial estimation for 2015. The changes in tax policy primarily revolve around:

  • reforming the VAT and increasing the rates on islands and various products and services
  • reforming the special solidarity tax
  • increasing the income tax of legal entities
  • increasing the advance payment on the income tax of self-employed
  • increasing the rates of the income tax from rentals and
  • increasing the State participation to 30% in OPAP’s profits from VLTs

Pension cuts looming

The government’s interventions in social insurance will primarily focus on gradually increasing the age of retirement and penalties for early retirements. The draft also includes provisions to increase pensioner contributions for healthcare, as well as changes so that lump payments are made so that the sustainability of the each pension fund is maintained.

State debt to soar

According to the draft, the general government’s debt is expects to amount to 315.8 billion euros or 181.8% of GDP by the end of 2015, compared to 317.12 billion euros or 177.1% of GDP in 2014. For 2016 the debt is expected to increase to 333.5 billion euros or 192.4% of GDP. The increase in debt is attributed to the 25-billion-euro recapitalization of banks.

Furthermore, the draft predicts a 2.3% of GDP recession for 2015 and a 1.3% rate for 2016. These divs however may change following the review in November. The rate of unemployment may also increase from 24.6% in 2016, to 25.4% in 2015 and 25.8% in 2016.

The full draft (in Greek) is available online.

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