A budget full of holes

Yesterday, the Greek government announced the budget execution to April.  The headline numbers are looking promising, with the budget deficit at 1.7bln, well below the target of 3.3bln and almost cut in half from the same period last year when the deficit stood at 3.6bln.

However, when one goes past the headline, the budget execution is particularly problematic and the new government that, hopefully, will be formed after the June 17 elections will face serious challenges keeping it on track.

Victim to the ever deepening recession, the state revenues continue their downward trend, already 495mln below the target, and it is only because of a tight control over primary expenditures and public investment spending that the deficit is below the target to date.

State Budget Execution, Primary and Public Investment Expenditure

On the revenue side, recurring revenues are down by 233mln, with direct taxation beating the target primarily as a result of the property tax levied through the electricity bills which brought in 486mln more than targeted.  On the other hand, the death spiral of the Greek economy economy is reflected in transaction taxes and in particular VAT that is off target by 418mln as a result of significantly lower consumption and overall turnover in the economy, combined with the inability of small and medium size firms to return the VAT in the absence of liquidity.

State Budget Execution, Revenues, Property and Transaction Taxes

Even more alarming, looking on the expenditure side, the social security sector has already used approximately half of the budget grants.  OGA and IKA, that need annually from the state budget 7.3bln, have already used 3.7bln.  In this rate, the majority of social security funds will need further state budget assistance before the end of the summer.

At the same time, pharmacists across the country are going today on a 24 hour strike and cut credit due to 700bln arrears from the state and social security funds.  No credit means that citizens and pensioners will need to pay for the medication of ALL treatments upfront, in cash, and then claim the expense from their cash strapped social security funds in hope of refund.  The same citizens and pensioners that have seen their disposable income reduced minimum by a quarter.

Social Security Sector Grants

In this fiscal picture, Greece’s politicians chose to take the country into a repeat election and from certain corners of the political spectrum we hear about magical solutions of an independent and proud Greece that can play hard ball in defiance.

The numbers are saying the brutal truth.  Everyone in the political scene better quickly face the reality because they risk having the country blow up in their hands.

@YiannisMouzakis