Greek budget deficit widens, construction plunges

ATHENS (Reuters) - Greece's budget deficit continued to widen in November and the construction business kept shrinking as an austerity-fuelled recession hit both government revenues and economic activity, data showed on Tuesday.

The debt-choked country is struggling to implement the reforms required by its EU and IMF lenders in exchange for loans and to cope with the impact of austerity on its economy, putting its capacity to meet targets once more at risk.

The budget gap of the central government widened 5.1 percent year-on-year to 20.52 billion euros ($27.1 billion) in the first 11 months of the year, the finance ministry said, while the debt-choked country had to pay a higher price to sell T-bills.

This means that Greece will likely miss its 2011 deficit targets and may need additional austerity measures to catch up with its budget goals in 2012, in what is forecast to be its fifth consecutive year of recession.

The economy is seen shrinking by at least 5.5 percent and bleak construction data showed on Tuesday that a deep slump continued in what used to be a key driver of the country's growth when it joined the euro and organized the 2004 Olympics.

Building activity by volume contracted 37.8 percent in the first eight months of the year while the number of new building permits dropped by 30.6 percent.

TAXES, RECESSION

This year's budget goals largely hinge on a string of emergency taxes imposed in September after Greece's lenders threatened to withhold bailout funds if it did not meet its budget goals, but the recession cancelled out much of the extra revenues the government was hoping to raise.

Under the 2012 budget plan approved last week, the budget deficit is expected to narrow to 9.0 percent of GDP this year from 10.6 percent in 2010, a target the finance ministry said was still feasible.

"The current revenue shortfall is expected to be addressed in December, when the (emergency) tax measures will yield results," the finance ministry said in the statement.

But a senior government official was less optimistic.

"If current spending and revenue trends continue, the deficit will be at about 10 percent of GDP and not at about 9 percent," the official, who declined to be named, told Reuters before Tuesday's budget data were announced.

The new taxes included a charge of up to 5 percent on gross personal income as well as a controversial property tax which households must pay or face having their electricity cut off.

These measures have failed to visibly boost net tax receipts, which shrank by 3.1 percent year-on-year in Jan-Nov, a slightly slower pace than their 4.1 percent drop in the first 10 months of the year.

Recession is dealing a further blow to the budget as the government steps up grants to social security organizations, whose revenues are drying up. Spending before interest payments rose by 3.0 percent year-on-year in Jan-Nov, according to Tuesday's figures.

The data refer to the state budget deficit, which excludes items such as local authorities. Even though they are not identical with it, they are indicative for the general government shortfall, the benchmark for the EU's assessment of Greece's economic policy program.

Greece's Public Debt Management Agency sold 1.625 billion euros of six-month T-bills on Tuesday, with the yield rising by 6 basis points to 4.95 percent compared to a previous auction in November.

Monthly T-bill sales have been Greece's sole source of market funding since it was shut out of bond markets early last year when its derailed finances triggered the country's worst crisis in decades.

(Editing by Stephen Nisbet)