Greece’s austere 2011 budget to target 7.0% gap

Greece is due to unveil on Monday a 2011 draft budget aimed at cutting its deficit below a 7.6%-of-GDP target agreed in a bailout deal with the IMF 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 which became prohibitive after last year's fiscal derailment and hurt the euro.
"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.
Carrying one of the heaviest debt burdens in the euro zone, seen at 133% of GDP this year, Greece is keen to convince investors it is making solid progress in cutting deficits and pushing reforms as it aims for a return to capital markets for funding sometime in 2011.
On Friday, a senior government official told Reuters the socialist government would target a deficit of 7.0-7.1% of GDP next year.
The draft budget will project a gap of 7.8% of GDP for this year, below an initial 8.1% target, with the economy slumping less than a projected 4% and nominal GDP getting an inflationary boost. Next year, international lenders project a milder downturn, expecting GDP to shrink 2.6%.
Under the terms of a 110 bln euro bailout agreed with the IMF and EU in May, Greece was to cut its budget gap by 50 basis points to 7.6% 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% of GDP.
Greece's belt-tightening will continue with next year's budget likely to rely on property taxes, an amnesty on building violations, new gambling licences and a one-off tax on profitable businesses for the third year in a row.
The government is also mulling raising the low VAT rate to 13% from 11% having raised the main VAT rate by four percentage points to 23% this year. But eight months into 2010 revenues trail a 13.7% growth target, up just 3.4%.