The new taxes that will pile up on Greek households will bring a new recession, despite the government’s optimistic forecast of 2.7% growth, says the Parliamentary Budget Office (GPV).
The GPV economists’ report warns the government that its forecasts for the economy and planned policies, as reflected in the new budget draft, are recessionary because the heavy taxation can only yield short-term results but will hinder growth. The report also says that the forecasts for 2.7% growth are based on “recessionary measures.”
Specifically, the GPV maintains that the assessment of the finance ministry staff for the increase in private consumption, investments and exports can be characterized as “quite optimistic.” It is noted that the economic policy mix will lead to reduction in state revenues, making positive growth rates difficult to achieve.
The GPV report says that the budget draft contradicts itself because it is claimed that the return to growth is based on the implementation of the bailout program, gradual relaxation of capital controls and solution to the problem of non performing loans. However, the draft budget forecasts less revenue from privatizations, delay of bad loan settlements and delay in structural changes.
Furthermore, the GPV notes that in the coming months it will become increasingly important to revise targets for primary surpluses until the final settlement of the debt issue. It notes that it is very difficult to maintain a primary surplus of 3.5% of GDP for many years.
Regarding the 2017 fiscal measures, they amount to 2.59 billion euros. However, only 3% of that will come from cutting government expenditures and 96.6% will come from tax revenues. This creates a suffocating environment for the economy, exacerbating the recession and reducing its recovery prospects.
“While any expenditure reductions rather than tax increases would probably have less immediate recessionary impact, the most important is that tax increases discourage businesses and entrepreneurs and thus hinder the prospects for recovery,” the report says.
Furthermore, the GPV repeats doubts about the sustainability of the pension system, despite the recent changes. It also urges for quicker implementation of required reforms, and faster conclusion of negotiations between the government and lenders.
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