MoF final data (on a modified cash basis) on Greek budget execution depicted a worse performance in December compared to that in November and October, attributed to seasonal (PIB) and one-off effects (debt buyback) along with a top-line pressure and a stall in cost cutting. Nevertheless, both 2012 budget deficit and primary deficit outperformed targets mainly due to the stronger fiscal performance particularly in the Aug-Oct period.

Revenues (excl. tax refunds) retained a negative trend for second consecutive month at an accelerating pace retreating by 13.6% y-o-y in December after falling 7.6% in November. As a result, 12-month figure eased 5.2% y-o-y (11M’12: -4.0%) to €51.5bn, in line with target. Direct taxes rose 3.8% y-o-y to €21.1bn, mainly due to a jump in property taxes to €2.9bn from €1.2bn last year, while income tax increased 2.9% y-o-y to €13.3bn. On the contrary, indirect taxes slipped 8.9% y-o-y to €26.1bn, reflecting a drop in VAT revenues by 11.4% to €15.0bn and in consumption taxes by 5.0% y-o-y to €9.6bn.

Tax refunds were contained at lower levels (-40.0% vs target of -30.2%) resulting in a relatively better performance of net revenues, which fell 3.7% y-o-y to €48.3bn.

After ten consecutive months of significant cost cutting, primary expenditure remained flat y-o-y in December, following a drop of 18.3% in November and 4.6% in October, bringing the 12-month figure down 8.6% y-o-y to €47.1bn, 0.9% better than target. The cut in primary expenses is mainly due to a 6.0% y-o-y reduction in salaries & pensions to €20.5bn as well as a drop in grants to social security sector by 5.5% y-o-y to €16.7bn.

Interest payments retreated 25.2% y-o-y (vs target of 28.2%) to €12.2bn. It is noteworthy that December figure (€790m) was affected by the one-off cost of debt buyback, while almost half of 2012 interest payments (€6.1bn) was recorded in March and was related to the implementation of the PSI agreement. Overall, total expenditure dropped 12.3% y-o-y to €61.5bn slightly outperforming target by 0.6%.

2012 budget deficit narrowed by 31.1% y-o-y to €15.7bn (8.1% of GDP) from €22.8bn last year (10.9% of GDP), with December recording a deficit of €2.8bn from €0.59bn in November and surplus of €0.46bn in October. Note that final deficit figure is €220m better than preliminary item (released on January 10) entirely attributed to lower tax refunds. Furthermore, 2012 reported figure (€15.9bn) bettered target of €16.3bn (8.4% of GDP) by €0.6bn or 3.8%, mainly reflecting the stronger fiscal performance evident over the Aug-Oct period.

It should be pointed out that Public Investment Budget (PIB) had a (relative) negative impact on December bottom-line contributing a deficit of €1.84bn, while its cumulative amount in 11M’12 stood at just €0.67bn. Excluding PIB, 2012 budget would have dropped 34.1% compared to the reported 31.1%.

Primary balance remained negative in December for second consecutive month recording a deficit of €2.05bn significantly worse than the figures reported in November and October (deficit of €0.3bn and surplus of €0.9bn respectively). Nevertheless, 2012 primary deficit narrowed 46.1% y-o-y to €3.47bn, corresponding to 1.9% of GDP from 3.1% last year, significantly beating target of €4.58bn (2.4% of GDP) by €1.1bn or 24.3%.