Romania he had one in the middle of the year deficiency budget of 3.6% of GDP, and estimates show a level of 7% at the end of 2024, that the increase in budget income is really necessary and cannot be reduced to a better collection of taxes and fees , but also changes in the fiscal system.
The report of the National Bank shows that the nominal income is higher in the performance of the budget, while the expenses went too fast, reports Ziarul Financiar.
Since the change of the public budget cannot be done only on the expenditure side and considering pressures on the public budget in the future (defense, education, public health, etc.), the increase in the future into a budget absolutely necessary. “This increase cannot be reduced to a better collection of taxes and fees, but it also calls for changes in the fiscal system.”
The BNR emphasizes that the very low level of tax revenue (26-27% of GDP, including grants) is also the result of a fiscal system that preferred to avoid and avoiding tax payments (tax evasion), favored by bad practices such as including personal expenses in company expenses, paying salaries in the black.
“Serious mistakes were made in the tax system years ago, when VAT reductions led to a reduction in tax revenue of approx. 4% of GDP. Hence the increase in social contributions to compensate for the loss of income. One result is that labor has become largely redundant relative to capital. The assertion of some that Romania has “overrun” is not true, say representatives of the National Bank.
In their opinion, however, there is great opposition to the correction of the budget deficit, because this is equivalent to a reduction in internal absorption, consumption, and some income. The fact is that the public budget is over-borrowed, the current account deficit is too high (around 7% of GDP) and is financed by external loans around 50%.
It is worth noting that the reduction of the current account deficit is also due to remittances of more than 6 billion euros per year from abroad.
The BNR reminds that the Government will send the structural fiscal plan to the European Commission in the near future. Considering the size of the budget deficit and the need to create fiscal space (at least 1.5% of GDP), a budget correction covering a period longer than 4 years makes sense.
This is also because important reforms (pensions, salaries) have a significant impact.
“But the reaction of the financial markets is unknown and should not be underestimated. As the Fiscal Council sees, European money in the budget is, for the most part, both on the expenditure side and on the income side. Some money from PNRR is not grants and there is the co-financing part of structural funds, but these budget parts do not explain the size of the deficit”.
According to the report, the budget deficit comes from an additional cost. And this surplus is much larger than capital expenditure (in the budget they are predicted at approx. 2.4% of GDP this year).
The BNR claims that it is good to try to make the largest investments from European resources, because the PNNR cannot be repeated, and that the proportions of structural and cohesion funds are likely to decrease in the future. Pressures on the public budget will increase if we also take into account defense needs, the commitment to military costs of 2.5 percent of GDP (in 2023, according to NATO data, they were at 1.6 percent of GDP).
2024-08-13 08:52:32
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