Greece Unveils Tough Draft Budget for 2016

By NIKI KITSANTONISOCT. 5, 2015

The New York Times

ATHENS — As Greece’s economy remains on shaky ground, its government unveiled on Monday a tough draft budget for 2016, heralding a series of tax increases and spending cuts to comply with creditors’ demands for a third bailout.

While such moves will help Greece to get the first installment of financial aid from the bailout, the budget also portends a difficult economic environment. The recession, according to the plan, will continue — the economy is expected to shrink by 2.3 percent this year and 1.3 percent in 2016. Both figures are in line with creditors’ estimates. Greece’s debt crisis has weighed heavily on its economy. Despite an increase in tourism, one of the country’s few dynamic industries, the imposition of capital controls over the summer dealt a major blow to the first shy signs of growth. The restrictions, which have since been relaxed somewhat, were put in place to avert a banking-sector collapse.

The draft budget also expects the central government’s debt to rise to 198 percent of gross domestic product next year, from 187.6 percent now. The new bailout loans account for much of the increase.

The draft budget was submitted in Parliament as Alexis Tsipras, Greece’s prime minister, detailed his government’s policy program in a speech to lawmakers. The budget is still subject to approval by Parliament and Greece’s creditors.

In the speech, Mr. Tsipras, who was re-elected last month, emphasized his commitment to carrying out the new bailout while seeking alternatives to some of the more onerous measures. His government’s top priorities, he said, were to reduce the country’s debt, recapitalize struggling banks and attract sorely needed foreign investments. (His new government faces a vote of confidence on Wednesday, which Mr. Tsipras will probably secure.)

Earlier in the day, Euclid Tsakalotos, Greece’s finance minister, met with his eurozone peers in Luxembourg to discuss the raft of economic changes that Greece must immediately legislate to unlock the first 2 billion euro installment from the €86 billion bailout. These changes include cracking down on tax evasion and fuel smuggling, liberalizing the energy market and introducing stricter criteria for the protection of overly indebted homeowners.

The budget outlines a variety of measures intended to meet the bailout requirements, like increasing the sales tax on hotels and paring government spending on indebted pension funds. In all, the tax increases and spending cuts are expected to add some €4.3 billion to the country’s coffers.

The government’s new draft budget foresees a primary surplus of 0.5 percent of G.D.P. next year. The lower primary surplus — the amount of revenue that Greece is required to hold after expenses have been paid and before servicing its debt — is one of the few concessions that Mr. Tsipras managed to extract from creditors. In theory, it frees up more money for Greece to spend on stimulating its economy.

Mr. Tspiras, in his speech, also underscored the need to soften the blow for Greeks. For example, he promised to suspend a hugely unpopular plan for a 23 percent sales tax on private schools.

“We have managed to secure the country’s financial stability and to definitively stop debate about Grexit,” Mr. Tsipras said, referring to the term for a potential Greek exit from the euro. He said enforcing the bailout terms “is a necessary condition.”

He added, however, that his leftist-led coalition would strive to “restore social justice and the dignity of the Greek people and work for a society of equality and prosperity.”