Indicates significant uncertainty in achieving the 2023 budget target. State Budget Office in Parliament and recommends a willingness to take compensatory measures, such as increased taxation of profitable businesses, in the event that household support spending should increase beyond the projected €1 billion reserve.

Achieving this year’s budget target of a primary deficit of 1.7% of GDP is relatively safe, the Office said in its opinion on the draft budget released yesterday.

However, there are significant uncertainties for 2023 and in particular for projected growth in private consumption (1.3%), investment (16%) and exports (1.8%).

All three of these components, says the Office, headed by Francis Kutentakis, could be negatively impacted by a possible decline in disposable income, further increases in lending rates and a possible loss of purchasing power from trading partners, either due to a slowdown or recession, or due to inflation. If growth rates are lower than expected, the department continues, there will be negative consequences for government revenues – tax and insurance.

However, the State Committee for Design Bureau considers the risk from higher prices for fuel and electricity to be more important. This may require additional income support, which will worsen the financial result. That is why the Office recommends that in the event of additional spending needs in excess of the €1 billion reserve, compensatory measures are taken to ensure that the fiscal target is met.

“Such measures can be either general, such as reducing costs or increasing revenues in other categories, or specific to the energy market, such as increasing the taxation of profitable enterprises, or, equivalently, lowering the ceiling on the wholesale electricity market.”

In addition, the Office notes that while inflation has a positive effect on government revenue and debt, raising interest rates can significantly increase government borrowing costs and make it difficult for it to have a sustained publishing presence.

In any case, the Office stresses, the risks and uncertainties posed by the international environment make it especially important to maintain financial credibility in a country in order to avoid the worst effects of international economic shocks.