Greece on Monday is due to unveil its 2011 draft budget, aiming to cut its deficit below a 7.6 percent-of-GDP target set under a fiscal adjustment plan agreed with the International Monetary Fund and its euro zone peers.
More austerity is expected as the heavily indebted country continues to dig out of its debt crisis in hopes of eventually normalising its borrowing costs.
"We are on a path of aggressive fiscal adjustment. In just one year we did the biggest deficit reduction ever managed by a euro zone country," Finance Minister George Papaconstantinou told Sunday's To Vima newspaper in an interview.
On Friday, a senior government official told Reuters the socialist government would target a deficit of 7.0-7.1 percent of gross domestic product next year.
Under the terms of a 110 billion euro bailout agreed with the IMF and its euro zone partners in May, Greece was to cut its budget gap by 50 basis points to 7.6 percent of GDP in 2011, a lighter task compared to this year's 5.5 percentage point fiscal correction, meant to shrink the deficit to 8.1 percent of GDP.
The draft budget, which will be submitted to parliament on Monday, projects a deficit of 7.8 percent of GDP for this year, below an initial 8.1 percent target, largely thanks to the economy faring slightly better than expected.
"The main reason for a better-than-expected 2010 deficit is the bigger nominal GDP," the official said, adding that GDP would reach 236 billion euros against an initial forecast of 231 billion.
Austerity policies to slash deficits, including cuts in public sector pay, pensions and higher taxes have deepened the recession this year but policymakers expect the economy, which accounts for about 2.5 percent of the euro zone, to shrink by less than 4 percent.
Despite the slump, consumer inflation has jumped to a 13-year high of 5.5 percent, partly due to higher value added tax rates, giving nominal GDP a boost.
Greece's austerity drive will continue as next year's budget is likely to rely on property taxes, an amnesty on building violations, new gambling licenses and a one-off tax on profitable businesses for the third year in a row.
Officials have said the government is also mulling raising the reduced VAT rate to 13 percent from 11 percent to address weak revenue growth.
Athens raised the main VAT rate by four percentage points to 23 percent this year but eight months into 2010 revenues trail a 13.7 percent growth target, up just 3.4 percent.
