Greece Macro Flash: Government Budget 2020

A growth-friendly Budget for 2020, financed through efficiency gains and cyclical tailwinds

Greece's Government Budget for 2020 capitalizes on the favorable fiscal trends in 2019 – with fiscal overperformance expected, despite the implementation of expansionary measures of c. 1.0% of GDP.

Fiscal outcome 2019

The achievement of a General Government primary surplus of 3.73% of GDP in FY:2019, compared with a primary surplus of 4.16% of GDP in 2018, is underpinned by a decline in State primary spending of 1.7% of GDP (-4.3% y-o-y), in conjunction with a reduction in the Public Investment Budget deficit of 0.6% of GDP (mainly due to higher revenue from the EU).

Lower spending in 2019 offset: i) a decline in State revenue of 0.7% of GDP; and ii) a deterioration in the fiscal position of non-State General Government entities by 2.1% of GDP (mainly due to lower State transfers) compared with FY:2018.

Fiscal strategy for 2020

For 2020, the Budget envisages the implementation of expansionary measures of 0.6% of GDP (€1.2 bn), which will be exclusively financed by efficiency improvements and supportive cyclical conditions.

A significant increase in the minimum threshold for cashless transactions for up to 30% of one's actual personal income is envisaged to support tax efficiency, providing c. €0.5 bn of additional tax revenue under an implicit assumption of an increase in cashless payments in 2020 by about 20% y-o-y, according to NBG estimates.

Approximately 50% of the new expansion package comprises tax relief for corporates – which typically has a high growth multiplier, affecting business decisions for investment, employment and production.

Impact on 2020 GDP growth

Provided that measures for 2020 focus on areas with high fiscal multipliers, the effective fiscal impulse to GDP growth exceeds 1.0 pp, assuming a small improvement in the international environment, stabilization of economic sentiment at its current level, and a steady improvement in liquidity conditions.