The government is revising the primary surplus target for 2025, and now the benchmark is above 3%, with the revision supported both by the unexpected surge in the primary surplus in 2024 and by the first figures for the execution of this year’s budget.
For 2025, the budget foresees a primary surplus of 2.4%, a figure that will lead to a general government deficit of 0.6%, given that public debt service interest is estimated to correspond to approximately 3% of GDP this year. Following the revision of the benchmark for the primary surplus, Greece is expected to show a surplus for the second consecutive year at the general government level.
A primary surplus of around 3% will be sufficient for this purpose, as the interest payments on the debt are essentially “locked in” at a fixed amount, and therefore decline proportionally to GDP over time. This year, the easing of interest rates by the ECB is also contributing to this direction, already reflected primarily in the yields of Greek government treasury bills.
The upward revision of the primary surplus for 2025 is supported by multiple factors. One is the continued improvement in tax revenue performance. The other is the increase in revenue from social security contributions.
So far, the economic team has in its hands general government data for the first two months of the year, which are based on figures that fiscally impact the previous year, that is, 2024.
However, the comparison with the corresponding two months last year shows that the improvement continues. For example, at the central government level, a primary surplus of 4.092 billion euros is recorded from 2.992 billion euros in 2024, while social security organizations show a surplus of 359 million euros this year in the two months of January-February compared to 18 million euros last year.
The situation in local government has also improved slightly, with revenues of 207 million euros from 185 million euros last year.
The reduction in unemployment, the implementation of the labour card on a larger scale, but also the increase in gross earnings bring more revenue from insurance contributions, while the generalized implementation of measures to increase electronic payments (for example, this year we will have interconnected cash registers for the whole year and not for half the year as happened last year) further stimulates tax revenues.
A much better picture than initially planned is also expected in tax returns. While 2023 ended with a historic record of declared income of 109 billion euros, this record is expected to be broken this year with a performance of over 115 billion euros, which will also increase income tax receipts.
Excessive surplus
The International Monetary Fund did not “see” the excessive surpluses of 2024 in the annual fiscal performance report published on the occasion of the spring meeting in Washington, which means that all the forecasts for Greece’s fiscal performance in the coming years were based on a different basis. For 2024, the IMF estimated that the budget will close with a general government deficit of 0.3%, when a surplus of 1.3% has already been announced by both Eurostat and ELSTAT. Of course, the IMF pointed out in the “fiscal monitor” report that data that were available until early April were used, which means that Greece’s surprising fiscal performance was not known to the authors of the report.
The ongoing positive developments in the fiscal sector facilitate the government’s plans for a new package of benefits, as well as relief in direct taxation, measures that will be specified in the coming months and will be presented by the Prime Minister at the opening of the TIF. Mitsotakis spoke about a targeted reduction in taxes on the middle class, which will concern the year 2026. All of this comes in the wake of the support measures announced on Tuesday and concern the permanent allowance for pensioners of 250 euros and the support for those renting their first home, costing 600 million euros, while an additional 500 million euros are being granted for public investments. Also, the threshold of benefits announced for 2026 totals 1 billion euros, plus an amount that may arise from the defense spending escape clause, which is estimated to reach up to 500 million euros.
IMF predicts debt reduction
The International Monetary Fund (IMF) predicts a reduction of at least 25 points in the debt-to-GDP ratio for the period until the end of the decade. With a “conservative” forecast based on already outdated assumptions regarding the country’s fiscal performance, the IMF estimates that the debt ratio will be reduced from 150.9% of GDP in 2024 to 125.1% by 2030. Even so, however, it turns out that the IMF also estimates that by the end of the decade Greece will surpass not only Italy (the IMF places this in 2026) but also France and Belgium in this indicator. This is because Italy will have a debt-to-GDP ratio of 137.7% by 2030, while France will have increased its own index to 128.4%, leaving Greece in 4th place, behind Belgium which will have a debt of 125.6% compared to Greece’s 125.1%. Most impressively, in 2030 Greece is estimated to have a lower debt-to-GDP ratio than both the G7 (its index is estimated to reach 129.3%) and the US (with a debt of 128.2% in 2030).
