Tax hike, cost reduction in Greece budget for 2016

By Money Times

Oct 06, 2015 10:12 AM EDT

Alexis Tsipras-led Greece government has proposed stringent measures in the budget for 2016 year. The draft budget for 2016 indicated a series of tough measures to restore normalcy in the ailing Greece economy.

The stringent measures include tax hikes, reduction in costs and spending. These measures are aimed at complying with the demands from the creditors as part the proposed third round of bailout package.

After the budget presentation, Greece is likely to get the first installment of financial aid as part the bailout plan. Barring tourism, remaining sectors of Greece economy are not doing well. The draft budget is awaiting Greece Parliament's approval.

Greece government is expecting to save euro4.3bn through slashing down of government spending on indebted pension funds and tax hikes. After implementing certain measures, Greece government may get 3 billion euros funding in October. 

After the initial round of financial help, the total debt of Greece government is expected to rise 198 percent of GDP from 187.6 percent as of now.

The Greece government has indicated that the ongoing economic recession will continue as the GDP is projected to drop 2.3 percent in 2015 and 1.3 percent in 2016. 

These GDP projections are falling in line with creditors' estimates. The tourism sector is major revenue churner for the crisis-hit Greece economy. The restrictions on capital, weakening banking sector, and other measures are indicating the shy signs of growth. 

Tsipras reelected last month after he resigned to seek a fresh mandate on the bailout package. In less than a year, in 2015 only, he won two elections to become Prime Minister of Greece.

Tsipras in his budget speech said that his top priorities included recapitalization of banks, reducing the debt burden on the economy, attracting foreign investment, etc. 

It's estimated that Greece will receive Euro 2 billion as part of the first installment out of the total euro 86B bailout package. The Greece government will focus on reducing tax evasion and fuel smuggling. The liberalization of the energy market is expected to attract foreign investment. 

Greece government is planning to tap global bond market in 2017, according to Tsipras. Greece government may get euro2bn ($2.1bn) in bailout cash by middle of October. Once certain measures are taken by the government, another round of euro1bn will be released to the government by end of October.

The Greece government is planning to impose sales tax on hotels, while slashing down government spending on indebted pension funds. The tax hike and reduction in spending will save euro4.3bn to the country.

Greece government is assuring the country that the recession is expected to ease off marginally this year. The increase in tourism revenues and bailout funding would strengthen reforming exercise.

The government is also expecting encouraging first half data. The main targets proposed in the budget draft may not differ from estimates in the bailout package, according to Finance Ministry officials.

The new draft of the budget foresees a primary surplus of 0.5 percent of GDP in 2016. The surplus is the amount that Greece is allowed to retain revenues to that extent after expenses paid and before servicing its debt. This is one major concession Tsipras lobbied to get from creditors.

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