MoF final data (on a modified cash basis) on Greek budget execution confirmed preliminary figures released on February 11 showing a budget and primary surplus in January, despite the revenue shortfall which was more than offset by a better expenditure performance.

Revenues (excl. tax refunds) retained a negative trend for third consecutive month retreating by 11.4% y-o-y in January after dropping 13.6% in December and 7.6% in November. Reported figure stood at €4,420m falling short of 1-month target by €239m or 5.1%.

According to MoF, revenue underperformance is attributed to lower-than-expected revenues from VAT (€161m), consumption taxes (€153m) and vehicle circulation fees (€134m), while revenues from personal income and property taxes outperformed monthly targets. In particular, direct taxes rose 8.6% y-o-y to €1,761m, while indirect taxes retreated 22.6% y-o-y to €2,414m, reflecting a drop of VAT revenues by 17.4% to €1,547 and a slump of consumption taxes by 35.7% to €699.

Tax refunds were contained at significantly lower levels at €43m from €163m last year resulting in a relatively better performance of net revenues, which fell 9.3% y-o-y to €4,376m.

Primary expenditure slipped 18.8% y-o-y to €3,932m, €679m or 14.7% better than 1-month target. Cost cutting is mainly attributed to a drop in grants to social security sector by 33.4% to €1,686m and salaries and pensions by 4.6% y-o-y to €1,523m. In our view, the latter reflects the recent cuts in pensions (effective as of January 1, with January payments most likely including two-month cuts, since pensions are prepaid) and public sector special payroll accounts (effective as of August 1, ’12 with the retroactive cut split into equal instalments).

Furthermore, interest payments also dropped by 47.9% y-o-y to €239m. As a result, expenditure exhibited an impressive performance easing by 21.2% y-o-y to €4,189m, €921m or 18.0% better than target.

Public Investment Budget (PIB) revenues rose 24.4% y-o-y to €56m (€24m or 30.0% below target), while PIB expenditure rose 36.7% y-o-y to €67m (€133m or 66.5% below target). Overall, PIB exhibited a small deficit of €11m from €4m last year with minimal impact on bottom-line for both periods.

Overall, 1-month state budget balance exhibited a surplus of €177m (€18m higher than preliminary figure) from deficit of €491m last year, significantly beating 1-month target, calling for a deficit of €873m, by €1,050m. Furthermore, primary balance also showed a surplus of €415m, from deficit of €33m last year, substantially outperforming 1-month target calling for a deficit of €413m by €828m.

Despite the positive surprise at the bottom-line, it is too early to draw a conclusion and we should wait to incorporate at least 3-4 months’ data to better assess current year’s fiscal performance. Key catalyst going forward would be the revenue evolution with the government reportedly planning to proceed to a settlement of last year’s unpaid tax bills which amounted to €13bn aiming to boost top-line amid a recessionary domestic environment.