MacroPolis

The 2017 budget tabled in Parliament on Monday revealed that the bulk of the estimated incremental fiscal performance in 2017 will stem from additional revenues since 2.45 billion of the 2.6 billion in total interventions will be on the revenue side.

The Finance Ministry forecasts that five revenue interventions will make up around 90 percent of the total incremental revenue collection next year. 

These mainly relate to income tax reform with additional revenues of 716 million (almost 30 percent of revenue increase), changes in the rates of solidarity levy with incremental revenues of 668.5 million (27.3 percent) and a rise in the excise tax on fuel products, which is estimated to bring in additional revenues of 439.6 million (18 percent).

Moreover, the increase in the basic VAT rate from 23 to 24 percent (effective from July 1 this year) and a rise in the excise tax on tobacco and e-cigarettes are projected to yield additional revenues of 218.4 and 142 million respectively in 2017.

Overall, tax revenues are expected to increase by 1.04 billion euros from last year to 46.86 billion in 2017. This fully reflects a rise in indirect taxes by 1.34 billion, while direct taxes are seen down by 296 million. 

This will result in a shift in the tax revenue mix towards indirect taxes, which are expected to reach 26.44 billion in 2017, making up 56.4 percent of tax revenues (from 54.8 percent in 2016). Indirect taxes as a percentage of tax revenues in 2017 are projected to be the highest since 2011, when they stood at 58.5 percent. Since then, they slipped to a low of 53.5 percent in 2014.

However, the drop of 296 million euros in direct taxes in 2017 does not reflect lower revenue collection in all tax categories. The anticipated decline is entirely attributed to reduced revenues from property taxes (by 401 million), direct tax arrears (by 332 million) and other direct taxes (by 546 million). This is expected to largely offset the impact of revenue interventions.

In contrast, income tax is projected to climb by 983 million euros, or 7.8 percent from last year. This fully reflects a jump in the personal income tax by 1.16 billion euros, entailing an increase of 14.5 percent from last year. Corporate income tax revenues are expected to decrease by 242 million. 

The key reasons behind the higher personal income tax revenues expected next year are the interventions on income tax reform and solidarity levy voted last May.

On the indirect taxes front, the estimated rise of 1.34 billion euros in 2017 is almost equally split between additional VAT revenues and consumption taxes by 769 and 712 million euros respectively. 

The increased taxes on fuel products make up 37 and 54 percent of the incremental VAT and consumption tax revenues respectively.

The Finance Ministry optimism for 2017 revenue collection reflects the tax revenue performance during 2016 coupled the strong GDP rebound of 2.7 percent that has been forecasted for next year. 

According to the latest figures for the 9-month period, tax revenues increased by 3.44 billion euros or 11.6 percent from last year. They reached 33.11 billion and beat their target by 1.07 billion.

However, this year’s revenue collection and over-performance does not guarantee that revenue targets will also be met in 2017. Also, the Greek Fiscal Council recently suggested that the magnitude of the projected economic recovery is ambitious.

*Manos is the head analyst at MacroPolis. You can follow him on Twitter: @ManosGiakoumis