Concern abruptly mushroomed in Athens this week in the wake of the latest IMF forecast claiming the Greek state will not post a 3.5-percent primary budget surplus in 2018, but instead will reach 2 percent of GDP.
If proven true, the figure would translate into a “fiscal gap” of roughly three billion euros, a scenario that generated pledges by top government ministers promising no austerity measures for 2018.
Pension cuts and a lowering of the tax-free annual income threshold are already planned, but for 2019 and 2020, respectively. The latter are part of an agreement – in principle – reached with creditors two weeks ago in Malta.
The last time the specter of a “fiscal gap” arose, before May 2016, the leftist-rightist coalition government eventually caved in to creditors’ demands for an automatic spending cuts mechanism. The so-called “cutter” was especially demanded by the IMF to ensure that fiscal targets would be met. Approving of the measure, in fact, had emerged as a condition set by creditors to conclude the first review of the Greek program (third bailout).
As of April 2017, however, the second review is still pending, with the latest unofficial deadline now being a May 22 Eurogroup meeting.
An IMF prediction that primary budget surpluses for 2019 and 2020 will also not exceed 1.5 percent as a percentage of GDP, also bodes ill for pensioners, many of whom will witness a “double whammy” of cuts in monthly benefits and higher income taxes for those earning more than roughly 6,500 euros a year.
The ambitious 3.5 percent primary budget surplus target applies to both 2019 and 2020.
The exact number where the tax-free income threshold will be set has still not been revealed, but is expected to be under 7,000 euros per year.
Additionally, amid the prospect of a looming “fiscal gap”, assuming the IMF’s forecasts pan out, the embattled Tsipras will also not be able to implement so-called “countervailing measures” to offset the latest round of austerity measures.
