The Importance of Large Private Taxpayers for Romania’s Fiscal Stability

OMV Petrom announced at the beginning of the year record contributions to the Romanian state budget in 2022, of around 20 billion lei, of which 19 billion lei represent taxes and duties (labor taxes, VAT, excise duties, royalties) and 1 billion lei dividends for the participation held by the Romanian state in this company. Direct taxes (VAT and excise) account for half of this amount.

BAT Romania also added about 10.5 billion lei to the Romanian state budget in 2022, after last year it announced a total contribution of 24 billion euros in 25 years of activity, and Rompetrol Rafinare also turned to the budget in 2022 of the state about 7.51 billion lei.

In 2022, the Romanian state achieved tax revenues of 230.5 billion lei. That is, 16.1% of the GDP came from the tax revenues collected in the economic activities performed in Romania.

Basically, the budget balance is achieved with a state that is limited (through its expenses) exclusively to these tax revenues

However, the level of budget revenues in 2022 was double, half of the revenues coming from other sources: state companies, state institutions, European funds, capital income, etc. However, this element is not at all encouraging and gratifying.

On the contrary, it gives chills because these revenues are highly volatile and significantly dependent on economic cycles. The greater the dependence on this type of non-fiscal revenue, the more procyclical and vulnerable the budget becomes to potential crises. Especially since many fixed expenses in the budget are set according to total revenues and not according to tax revenues.

The three private companies (OMV Petrom, BAT Romania, Rompetrol Rafinare), i.e. the biggest contributors to the state budget, financed the Romanian state for about half of the (excessive) deficit, 1/3 of the Romanian state’s expenses with salaries in the budget sector.

Only the three big taxpayers generated in 2022 about 16.5% of the total tax revenues from the Romanian budget

All 3 companies in the top 3 places in the list of the biggest contributors to the state budget are private companies. Top 10 large taxpayer companies provide about 8-10% of total budget revenues, i.e. about 20-25% of annual tax revenues. These large companies cannot afford tax evasion, they are up to date with the taxes paid to the state budget.

All collection is done by these companies solely at their own expense.

The state does not lift a finger, the state does not consume resources to collect this money. Expect these companies to fill the state’s accounts on time and with substantial amounts.

These large taxpayers have an obvious fiscal stabilizer role. In the context of very rigid expenses (such as salary expenses in the budget sector or pensions), which cannot be reduced easily (especially in a recession), it becomes important that the state budget is fed through these income channels, a secure income, with very little tax evasion behind it and with very little cost of collection and control by the state.

The need for such fiscal stabilizers is seen in the way the state counts and increasingly uses state-owned companies to generate non-tax revenues. Unfortunately, in recent years the state has increasingly replaced fiscal stabilizers of this type (private ones) with state companies. This obvious strategy cannot be beneficial in the long term because the revenues generated by both the private and the state sector depend on capital investment, capital that the state does not have and can no longer borrow easily, due to the public debt as well higher (as a percentage of GDP) but also because of the extremely weak steps towards improving the country rating.

In this context, fiscal policy, whether we like to admit it or not, must, rather, give priority and proper care to these large private taxpayers who brilliantly fulfill this role of fiscal stabilizer and keep Romania afloat.

Instead of hitting them with all kinds of “solidarity”, “pillar”, “unrealized profits” etc. taxes, we would rather seek to offer the necessary transparency and credibility to these businesses, a serious and honest strategic partnership that lead to the horizontal and vertical development of their business, which could attract other strong global players, could make Romania really attractive for global value chains.

We could see more real foreign investment here and we could see more development that has a long-term vision behind it and not small goals and actions with a short time horizon.

It is clear that Romania needs at least as many large private taxpayers, if not more, to ensure its necessary macrostability and to be able to start a healthier, more robust and more resilient growth strategy in the face of crises potentials. This is the right approach and the only one we have left.

There is a lot of talk these days about money for education. The only resilient and healthy source is the attraction of big new contributors to Romania like the ones above. That can only happen if you remain serious and credible in honoring your agreements with these very important players. Unfortunately, today too little is being done in this direction. And in another direction, related to this and equally important: the privatization of large state-owned companies (especially those in energy and gas), a topic that has also been sacredly shelved for some time. For too long.