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Greece Unveils 2013 Austerity Budget

by Ulrika Lomas,, Brussels

03 October 2012

On the brink of bankruptcy and about to enter a sixth year of recession, debt-ridden Greece has recently unveiled details of its draft 2013 austerity budget, aimed at appeasing its international creditors and securing disbursement of the next loan tranche, and providing for painful new spending cuts totalling EUR7.3bn (USD9.4bn).

The 2013 budget, which provides for a reduction in the deficit from 6.6% of gross domestic product (GDP) this year to 4.2% of GDP in 2013, contains plans to dramatically cut both public sector wages and pensions, as well as to cut welfare benefits and spending on defence, the health sector and education.

On the revenue side, the government plans to reform the country’s tax system and to increase the retirement age from 65 currently to 67.

The Greek economy is expected to shrink for a sixth year by 3.8%.

The fiscal measures provided for in next year’s budget form part of a wider EUR13.5bn two-year austerity and reform package for 2013-2014, to be agreed with the troika (comprising the European Commission, the European Central Bank and the International Monetary Fund) in the coming days before its progress report is submitted for examination in October.

The package is expected to contain both expenditure- and revenue-based measures. Athens is hoping to secure disbursement of the latest EUR31.5bn loan tranche from the country’s second bailout deal and to extend by two years to 2016 the fiscal adjustment period.

Greece had already adopted multiple waves of austerity measures over the course of the past few years, including income tax increases, and an extension of the new property tax, aimed at appeasing international creditors. The government had also pledged to clamp down on rampant tax evasion.

To secure the second EUR130bn international bailout package, Athens had agreed to a series of painful budgetary cuts, including plans to lower the minimum wage by 22%, to freeze civil servant pay and to cut pensions. The deep budgetary cut measures were in addition to debt restructuring.

The government has submitted the 2013 budget bill to parliament.

TAGS: tax | economics | pensions | European Commission | property tax | fiscal policy | public sector | gross domestic product (GDP) | retirement | budget | education | Greece | Europe

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