Budget for 2013 to include €2obn in austerity measures

The Cabinet is due Thursday to approve a state budget for 2013 that includes belt-tightening measures worth around 20 billion euros to meet the deficit target for the central government and the Social Security system of 3.8 percent of GDP.

Spending at government ministries is to be slashed by 12.2 percent in order to save 4.3 billion euros, while wages of public sector workers will be frozen for the third year in a row. However, the administration will bring back the Christmas bonus payment for civil servants, which was eliminated this year.

Outlays on public investments and current costs will be cut by 15 percent.

At the same time, the government is looking to raise a further 15.069 billion euros from tax hikes, particularly from the increase in the standard value-added tax rate to 21 percent from 18 percent, which came into effect at the start of this month.

The government will also introduce new environment taxes and raise the levy on capital gains posted within an investment horizon of less than one year. A number of tax benefits currently in place are also due to be dropped.

Borrowing costs are set to rise by 9.1 billion euros to 38 billion

The administration is hoping the VAT increase will yield an additional 10.134 billion euros in 2013 based on the assumption of a contraction in GDP of 0.5 percent.

Despite putting the austerity drive into fifth gear, overall spending is due rise 9.2 percent as a result of higher interest rates on public debt and Social Security system outlays, largely a result of unemployment benefits, with a quarter of the working population out of a job.

State pensions are to be raised by 1 percent next year, and the government will maintain the practice of topping them up to compensate for the loss of purchasing power as a result of any deviation from the official target set for the year.

Borrowing costs are set to rise by 9.1 billion euros to 38 billion. This is expected to exceed the cost of the public sector payroll, which was already less than debt servicing costs this year. Financial costs are estimated to be double those budgeted for 2009 due to the jump in outstanding public debt resulting from the deficit.

Social security outlays to cover state pensions, temporary incapacity payments and benefits to families are budgeted at 6.683 billion euros

The government plans to send the state budget to Congress on Saturday for approval by October 1.