Wednesday, 11 May 2011

Why are Greek state budget revenues falling ?

It is a fact that state revenues were down during the fist quarter of 2011 when compared with the same period of 2010. Various reasons are being cited for this, but here are the relevant data in chart form so you can decide for yourselves.

source: Hellenic Ministry of Finance

source: Hellenic Ministry of Finance

Although the bulk of income tax receipts have not been collected yet, we can see that unti now they are down, year-on-year. This is the recession demonstrating its force, with unemployment rising and wages slashed is this really a surprise?

source: Hellenic Ministry of Finance

Keep in mind that VAT along with special consumption taxes was first raised on March 2010, then on July 2010 and then on January 2011. That makes comparisons a bit tricky since as time goes by, the state takes in a larger chunk of retail sales turnover. Hence like-for-like comparisons are not possible yet and in order to have a clearer picture we'll have to wait for data concerning the next few months.

I personally think that indirect tax receipts will be down for the year as a whole, since real disposable income's decline and rising unemployment, as well as price hikes (in the cases that they are passed on to consumers) bring on significant demand destruction. Even in the cases that revenues were up until now, retail sales volume indexes, for all services and product groups, have posted heavy declines which confirm that demand is sinking. That's what I think of course and I could very well be wrong (and I sincerely hope that I am). That's the Laffer curve for you...

source: Hellenic Ministry of Finance

Revenues from special consumption taxes seem to be already shrinking, year-on-year, only tobacco on March seems to be an exeption. It remains to be seen if this was an one-off event or if it is part of a trend, although I can think of no reason for that to be so.

I think that as far as state budget revenues are concerned, things are not looking good and will only get worse from now on. If the government wants to reach the goals set by the MoU with the EM/IMF block, then other measures are in order. It goes without saying that these measures should concern the expenditures side of the budget. I can see of no political will to do so, although pressure is mounting since things seem to be at an impasse right now. I can see no reason to be optimistic about this...

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