It is unlikely that the State budget will be balanced before 2027, and the National Pension Insurance Fund (CNAP) will also probably pay out more than it collects.
When the blue-red-green coalition took office for a second term in 2018, the government promised major tax reform as well as plans to get State finances under control by the end of their mandate. In 2019, this goal almost became reality thanks to a booming economy, a slight surplus, and State debt of around 13 billion euros.
However, the step-by-step plan to reduce the deficit was thrown into disarray with the onset of the Covid-19 pandemic in early 2020. According to the latest forecasts, the government expects a 1.5% GDP deficit in 2023, with a 1.2 billion euro shortage from the treasury. Government debt has risen to over 20 billion euros - just below the 30% limit, while further deficits are predicted for the next few years.
After successive crises in the pandemic, the war in Ukraine, and the subsequent inflation hike, revenues are not as high as they should have been. The government spent around three billion euros on Covid measures, with a further 2.5 billion allocated to combat high inflation in 2022 and 2023.
Up until the end of June this year, the measures against inflation - agreed to by the tripartite - were estimated to cost 1.1 billion. However, the current forecasts do not leave much room for tax reform, unless financed through new debt. In addition, the General Inspectorate of Social Security (IGSS) predicts that pension fund expenses will surpass the current revenues by 2027 in the next government term.
It remains to be seen whether the adjustment of pensions, in line with real wage development, will be shortened. Without measures, it is likely that the interest reserves for the pension insurance compensation fund will start to rapidly decrease in nine years.
