Retirements: Scenario of return of donations and retroactive leave to retirees

The preparation of additional relief in the amount of 880 million euros after the elections is indirectly announced for the current year by the stability program 2023-2026 which was transmitted yesterday to Brussels by the Ministry of Finance.

In the text of PS 2023-2026, it is expected for this year that the primary surplus will reach 1.1% of GDP. However, it is stressed that the official objective will be the creation of a surplus of 0.7% of GDP. In this way, a budgetary space of 880 million euros (0.4% of GDP) is announced, which will be available until the end of the year for additional positive measures.

Given that Brussels has given the red light to new emergency measures to deal with the energy crisis, it is highly likely that the new interventions will be permanent measures. Although the program does not specify what will be done with this tax margin, it is not unlikely that the subject of the retroactive return of Donations and leave to retirees will be removed from the drawer.

As for the coming years under condition of stable policies, the main result of general government should be a surplus of 1.1% for 2023, 2.1% in 2024, 2.3% in 2025 and 2.5% in 2026.

The stability program includes in the base scenario the cost of the increase in pensions each year based on GDP and inflation, as well as the increase in the salaries of civil servants from 1/1/2024, announced by the TIF.

However, it does not include the Prime Minister’s pre-election announcements of additional tax measures amounting to 0.1% of GDP for 2024 and 0.3% of GDP for the years 2025 and 2026. This cost relates to the increase in the tax allowance of 1,000 euros for families with children, the reduction of subsistence allowances, the increase of the guaranteed minimum income by 8%, the gradual abolition of the employment tax, the gradual reduction of 1% additional insurance contributions, the increase of the maternity allowance for self-employed and farmers from 4 to 9 months at the level of the minimum wage, a new permanent program of 10,000 new jobs for young people and a series of other initiatives.

However, the implementation of the above measures does not disrupt the medium-term objective of a primary surplus at average levels of around 2% of GDP from 2023 to 2026.

A second element of the program is the sharp reduction in debt as a percentage of GDP by a total of 28.7% from 2023 to 2026. Specifically, with stable policies, general government debt is expected to decline from 171.3% of GDP in 2022 to 162.6% of GDP in 2023, 150.8% of GDP in 2024, 142.6% of GDP in 2025 and 135.2% of GDP in 2026.

Development

In the base macroeconomic scenario of the program, the growth rate for this year is officially revised from 1.8% forecast by the Budget to 2.3%. For 2024 and 2025, it is expected to increase to 3% to decline to 2.1% in 2026, when the Greek Recovery Fund Greece 2.0 program is almost complete.

The engine of growth for this year will be investment, which is expected to grow by 13.2% this year, 9.7% in 2024, 10.7% in 2025 and 7.2% in 2026. Exports are expected to grow by 2.3% this year, 6.3% in 2024, 5.3% in 2025 and 4.5% in 2026. Private consumption will remain positive for this year registering a growth of 1.3%, rising to 2% for in 2024 and 2025 and will decrease to 1.2% in 2026.

Based on the evolution, the current account deficit will decline as a percentage of GDP from 7.6% expected this year to 7% in 2024 and 2025 and 6.8% in 2026.

Inflation is expected to decline to 4.5% this year, from 9.3% in 2022, and continue to decline to 2.4% in 2024 and 2% in 2025 and 2026.

Unemployment is expected to rise from the 11.8% expected to close this year to 10.9% in 2024, 10% in 2025 and 9.8% in 2026. As a result, employment is expected to grow at a rate of 0.9% for this year, 1% for 2024, 0.9% for 2025 and 0.2% for 2026.