With an eye on developments in the Middle East, the Ministry of National Economy and Finance tabled the draft budget for 2025. The basic forecast for the price of oil is set at $80 from $85.4 last year. At the same time, tax revenues will increase further by approximately 2.5 billion euros, which is also due to accuracy. Specifically, from 66.247 billion euros this year to 68.721 billion euros in 2025.
It is worth noting that the economic staff of the government adopted the Commission’s forecasts for the rate of growth for this year and next year. Therefore, the draft will forecast growth of 2.2% this year (instead of 2.5%) and 2.3% in 2025 (instead of 2.6%), which shows how expectations have been “lowered”. The Gross Domestic Product (GDP) in nominal terms in 2025 is expected to increase by approximately €10 billion and the ratio of the General Government debt to GDP to decrease by 4.6 percentage points.
What Hatzidakis and Petralias said
In the relevant letter to the members of the Standing Committee on Economic Affairs of the Parliament, the Minister of National Economy and Finance Kostis Hatzidakis and the Deputy Minister Thanos Petralias, state: “The draft budget 2025 is submitted at the same time as the submission to the Council of the European Union and the European Commission of the first Medium-Term Financial-Structural Plan 2025-2028 (MDS) based on the new European economic governance framework. Therefore, the macroeconomic and fiscal figures reflected in the draft are in harmony with the estimates of the MDS.
According to a statement by the MINISTER Kostis Hatzidakis: “The 2025 Budget sends a message of optimism! It has 12 different pay raises and 12 tax cuts. It confirms that our economy will grow much faster than the European Union average. And that unemployment will decrease even more. The government is taking another important step towards the full fulfillment of its pre-election commitments!”.
For his part, Deputy Minister Thanos Petralias emphasized: “The draft of the 2025 Budget has been submitted to the Standing Committee on Economic Affairs. It should be mentioned that at the moment as we speak, the Medium-term Financial Structural Plan is also being submitted to the European Council. Greece, despite the high uncertainties from recent geopolitical developments, shows high resilience. In this context, as in the medium term, the draft foresees a growth rate of 2.2 for this year and 2.3 for next year, inflation of 2.7 (based on ELSTAT) for this year and 2.1 for next year and a primary surplus of 2.4 for this year and 2.5 for next year, which is the basis that allows us to increase spending, primary spending, as we mentioned in the Medium Term. In this context, general government primary expenditure is expected to increase by 3.6% with a limit of 3.7% from the Medium Term. We should mention that the draft Budget mentions all the measures presented at the International Exhibition of Thessaloniki and what we have announced that are within fiscal goals, so it is called upon to compare the goals of fiscal stability with the goals of improving citizens’ disposable income, but also to face modern problems such as housing, demographics, climate change and the necessary increased national defense costs. Everything is done for the benefit of the improvement of the social welfare of the citizens for the benefit of the citizens, with the aim of distributing the limited fiscal resources, with the best possible efficiency”.
Primary surplus and debt
At the same time, the target for the primary surplus is set at 2.5% next year from 2.4% this year.
Also, general government debt is projected to decrease from 153.7% of GDP in 2024 to 149.1% of GDP in 2025 and the budget deficit from 1% to 0.6%, respectively. Primary spending is not expected to exceed 2.6% in 2024 and 3.7% in 2025.
Inflation based on the Harmonized Index of Consumer Prices is forecast to decline to 2.8% in 2024 and further decelerate to 2.1% in 2025 from 4.2% in 2023 as, according to the government, -to date- overall reduction in energy prices, despite fluctuations and the de-escalation of food prices are increasingly contributing to the process of slowing inflation. Of course, the latest inflation figures published by Eurostat are not encouraging.
Consumption, unemployment and investment
At the same time, the contribution of private consumption in the period 2024-2025 is expected to remain stable and in…low flights, with an average of 1.2 percentage points and an annual growth rate of 1.7%.
The unemployment rate based on the labor force survey is projected to decline steadily to 10.3% in 2024 and 9.7% in 2025, close to pre-crisis levels (9.6% in 2009). Nominal workers’ wages are expected to grow at an average rate of 4.3% in 2024-2025, driven by wage growth in the private and public sectors alongside a tight labor market.
Regarding the course of investments, the draft budget is expected to predict that the so-called Gross Capital Formation will increase from 6.7% this year to 8.4%, which is also due to the continued arrival of resources from the Recovery Fund. This is one of the reasons why there is a provision for an increase in the Public Investment Program from 14.856 billion euros to 18.954 billion euros.
The measures
According to the ministry, the draft budget 2025 includes all the interventions that have been announced, including those presented at the Thessaloniki International Exhibition. The new permanent fiscal measures affecting the regular budget entail additional fiscal costs in 2025 compared to 2024, amounting to 1.1 billion euros, while a number of other interventions are financed by resources from the Public Investment Program (PIP) and the Recovery and Resilience Fund (TAA). In this context, investment expenditure is expected to increase from 13.1 billion euros in 2024 to 14.3 billion euros in 2025, plus the resources of the TAA loan arm.
The new fiscal interventions, complemented by a series of institutional measures, focus on supporting disposable income, boosting investment and innovation, addressing the demographic and housing issues as well as addressing the challenges of climate change.
2.5 billion increase in tax revenue
At the same time, tax revenues will increase further by approximately 2.5 billion euros, which is also due to accuracy. Specifically, from 66.247 billion euros this year to 68.721 billion euros in 2025.
Tax revenues are expected to reach 66,247 million euros, increased by 3,288 million euros or 5.2% compared to the 2024 budget target. This increase is mainly due to: (a) the reduction of tax evasion combined with the increase in electronic transactions (it is noted that revenues from corporate income tax are estimated to be higher by 1.1 billion euros and VAT by 0.87 billion euros compared to the budget) and (b) to the increase in fees, which which mainly affects income from personal income tax (increase of 0.84 billion euros compared to the budget). It is noted that the individual macroeconomic variables that affect revenues have relatively small differences compared to the budget. In particular, inflation is estimated for 2024 at 2.7% and the growth rate of real private consumption at 1.7% (against 2.6% and 1.3%, respectively, which were the budget estimates). Significant, however, is the increase in dependent labor wages in 2024 estimated at 5.2% versus 3.8%, which was the forecast in the 2024 budget.
Tax revenues are expected to reach EUR 68,721 million, up by EUR 2,474 million or 3.7% compared to 2024, mainly due to the projected growth of the economy, as reflected in the macroeconomic projections. More specifically:
Revenues from taxes on goods and services are forecast to reach €37,798 million, up €1,528 million or 4.2% compared to 2024.
In particular:
- VAT revenues are expected to amount to 26,508 million euros, increased by 1,254 million euros compared to 2024 and
- The EFFKs are foreseen in the amount of 7,239 million euros and are increased by 47 million euros compared to 2024.
Source: OT.GR
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