Photographer: Konstantinos Tsakalidis/Bloomberg

Greece Sees Economy Rebounding Next Year as New Taxes Kick In

  • Measures worth total 2.6 billion euros in 2017 draft budget
  • Austerity still a struggle for Tsipras’s coalition government

Greeks are bracing for more belt-tightening next year with a new set of taxes unveiled in the government’s budget plan for 2017, while the economy is seen rebounding after the steepest slump since World War II.

Lawmakers in Athens will be called upon to approve the budget which incorporates measures worth 2.6 billion euros ($2.9 billion). Prime Minister Alexis Tsipras’s government is attempting to balance international creditors’ demands -- which must be met to secure the next loan sub tranche -- with a commitment to voters to cut down on austerity policies. On Monday, riot police used tear gas to disburse retirees who were protesting in central Athens against pension cuts.

Tsipras’s plan for 2017 projects a 2.7 percent expansion of the economy, a more optimistic expectation than the 1 percent median consensus growth forecast of 23 analysts, though it’s in line with the European Commission’s estimate.

Greek lawmakers approved a set of prior actions tied to the disbursement of a pending 2.8 billion-euro bailout loan subtranche on Sept. 27. The omnibus bill, which included the transfer of state assets to the country’s new privatization fund, caused disagreement among lawmakers of Tsipras’s coalition at a time when the main opposition New Democracy party is leading opinion polls.

Austerity Measures

The budget draft submitted to parliament Monday incorporates measures already voted as part of the country’s first bailout program review, including increases to taxes on coffee, gasoline, tobacco, fixed-line telephony and heating oil that aim to increase state revenue by around 0.3 percent to 48.3 billion euros. The government expects 330 million euros in revenue from privatizations in 2017.

The draft budget sees Greece’s debt rising to 178.9 percent of gross domestic product at the end of 2016 before falling to 174.8 percent of GDP in 2017. The country ’s primary budget surplus is forecast to rise to 1.8 percent of GDP in 2017 from a revised estimate for a surplus of 0.6 percent in 2016.

Short-term and medium-term measures for the restructuring of Greek debt will play a decisive role for reaching 2017 budget targets. Greece expects debt measures to be decided by the end of this year and implemented before the end of Greece’s bailout program in line with decisions in May at a meeting of euro-area finance ministers.

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