The pandemic is pushing the Finance Ministry to prepare an additional budget for 2021, as it increases the bill for support measures to businesses and households to over 10 billion euros, compared with an initial forecast of 7.5 billion euros.
The latest health data is forcing changes to the original plan, resulting in unfavorable scenarios being put on the table for the duration of the crisis, based on which the state’s additional burden may exceed 3 billion euros by the end of April.
The increase in costs is attributed to the extension and addition of support measures until April (eg. suspension of labor contracts, rent payments, freezing of payments to the state) and the activation of programs subsidizing fixed costs and business loans.
More specifically, the extra financial strain for the state results from the following:
- The lockdown will cost 500 million euros in February and its extension for another two months will increase the total amount to 1.5 billion provided that it is not switched to a hard lockdown.
- 500 million euros will be spent by the state to subsidize the fixed costs of companies in accordance with the EU’s state aid framework and another 300 million euros to subsidize installments on business loans.
- 230 million euros will be the drop in income in case VAT payments are frozen and another 280 million euros will be lost from suspensions for payments to the state by individuals and companies.
- 300 million euros will be required to extend unemployment benefits in March and April.
Budget funding of 7.5 billion euros that had been put aside for the pandemic will rise, as stated by Finance Minister Christos Staikouras, who avoided, however, to determine the extra amount needed.
The scope of this year 's intervention for the health crisis will go far beyond the spending limit of 67.2 billion euros provided for in the 2021 budget, leading the ministry to revise the primary deficit target for 2021, which will make budget consolidation efforts even harder to achieve.
Revenue lag
At the same time the reduction in market turnover levels, in combination with suspended tax payments, is opening holes in state coffers. According to sources, in January tax revenues and social security payments showed a large drop in the first ten days reaching 40%, but the picture improved late in the month, reducing the monthly drop off.
The large concern for Finance Ministry officials is whether a broder lockdown will be imposed on Attica, which would deliver a broader blow to GDP, given that Greece’s annual economic output is currently at about levels of 50%.
According to economists, a targeted lockdown in Attica costs 600 million euros every 15 days and 1.2 billion euros for a month, while in a general lockdown the bill reaches 1 billion euros every 15 days and 2 billion euros for the month.
A large problem for state coffers, and a source of risk for the real economy, is the shuting down of restaurants, a sector that has a significant contribution to GDP. Eurostat data show that the catering sector in Greece has one of the highest contributions to growth in the EU.
In Greece, household expenditures for catering amount to 16 billion euros per year, amounting to 9% of GDP, while more than 80,000 companies with about 330,000 employees are active in the sector.
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