ATHENS Greece will unveil a draft budget for 2013 on Monday which will cut deeper into public spending to impress international lenders but also prolong the economic pain of the Greek people.
Athens is keen to see its bailout funding resume as its next 31.5 billion euro tranche has been pushed back while inspectors from the European Commission, European Central Bank and International Monetary Fund decide if its current program of cuts is on track.
Greeks are bracing for more pain to bring the country's public finances closer to a primary surplus - where all spending other than debt interest is covered by taxes - a milestone on the road to coming to grips with its debt mountain.
Greek police clashed with hooded rioters as tens of thousands took to the streets of Athens on this week in the country's biggest anti-austerity protest in more than a year.
Greece becomes the latest euro zone member to tighten their budget further, with Spain and France this week also seeking to prove they can make the cuts needed to keep lenders and markets onside.
Next year's budget will include more cuts in public sector pay, pensions and welfare benefits as part of an 11.5 billion euro austerity package of savings that will be spread out over the next two years.
"It's going to be a tough budget, projecting a sixth year of recession," a senior government official told Reuters. "It will focus on further savings, incorporating measures agreed by the political leaders."
"This budget will be another step to get the country closer to financial independence, reducing the state's operating costs," the official said.
After weeks of haggling over budget cuts, Prime Minister Antonis Samaras's allies in the coalition government have struck a deal on the composition of the package of savings and are ironing out the final details.
Athens needs to seal the deal soon so it can push the austerity package through parliament before an October meeting of euro zone finance ministers.
Another government official who declined to be named told Reuters next year's draft budget will embody a substantial chunk of some 7.5 billion euros of spending cuts that are part of the austerity package.
Struggling to shrink its budget hole to 7.3 percent of national output this year from 9.1 percent in 2011, Greece will likely miss the target as a percentage of GDP as its economy slumped by a deeper-than-projected 7 percent.
The EU Commission had forecast an economic contraction of 4.7 percent in 2012 but belt-tightening took a bigger toll on economic activity, suppressing domestic demand and driving the jobless rate to a record 24.4 percent.
As a result, this year's primary deficit - which excludes debt servicing costs - will also exceed a targeted 1.0 percent of gross domestic product (GDP). The finance ministry expects the primary deficit at 1.5 percent of national output.
"The new budget will be challenging. The government will need to generate a primary surplus for the first time in many years," said Eurobank economist Platon Monokroussos.
"Based on my estimates, Greece needs a primary surplus of at least 1.5 percent of GDP to stabilise and start a gradual reduction of its public debt-to-GDP ratio," he said.
(Writing by George Georgiopoulos; Editing by Toby Chopra)