Concordia Employers' Confederation: Budget figures for 2024 reveal excessive, unjustified government optimism on revenue levels

The 2024 budget figures reveal excessive and unjustified optimism on the part of the Government regarding the level of revenues, with the National Tax Administration Agency (ANAF) intending to collect 30 billion RON more next year, even though this year it collected 12 billion RON less than it had in mind at the beginning of the year, representatives of the Concordia Employers' Confederation say in a report published Wednesday."The government is expecting inflows from European funds and PNRR [the National Recovery and Resilience Pan] of over 60 billion RON, although of the 55 billion RON it has pledged for 2023, it will achieve just under 29 billion RON. The extra 12 billion that the Government believes it will collect from CASS [the Social and Health Insurance] after the expansion of the membership base is also questionable in the absence of substantiation for understanding how this figure was reached," the report states.Concordia Employers' Confederation points out that a budget construction based on unrealistic estimates could lead to a repeat of the 2023 situation, putting additional pressure on taxpayers and business when the economy is already slowing down.On the other hand, Concordia representatives believe that "the government's intention to combat tax evasion is to be appreciated."Concordia representatives also argue that in the final opinion of the Fiscal Council on the budget, it is explained that the ex-ante inclusion in the budget projection of hypothetical revenues of 19 billion RON, coming from the desired improvement in the efficiency of collection/digitization of ANAF, cannot be taken into account. Thus, the FC warns of the risk that the revenue collected will be lower by about 19 billion RON, representing about 1.1% of GDP, compared to the targets assumed in the draft budget.In its opinion, the Fiscal Council also talks about tax evasion and tax avoidance that have become almost institutionalised, with a VAT collection gap of over 36% compared to the EU average of around 5%.In line with the Fiscal Council's analysis, Concordia representatives argue that the government's stated intention to address this problem is insufficient to justify budgeting in such an optimistic manner with respect to revenues."Because the revenue estimate was the main issue in 2023 and because it is expected to be a risk element in next year's budget as well, in our analysis we focus our attention on this chapter. The total revenue foreseen in the budget proposal for 2024 amounts to 308.76 billion RON, an amount 20% higher than the total revenue in the preliminary execution for 2023, respectively 12% higher than the 2023 budget. The total revenue collection rate in 2023, calculated as a percentage of the initial budget, was 93.16%, a lower percentage compared to the last 2 years, when the total revenue collected was above the initial budget," the report said.The largest share of revenues the state plans to collect in the 2024 budget year is represented by current revenues (238 billion RON, i.e. 77% of the total), which include tax revenues (representing 65% of total revenues), insurance contributions and non-tax revenues.At hte same time, the largest increase, compared to the preliminary state budget execution of 2023, can be observed in the case of tax revenues (200.3 billion RON), which in the proposed budget for 2024 are 19% higher than the revenues collected in 2023 (168, 2 billion RON), respectively in the case of insurance contributions collected to the State Budget (other than those collected in the State Social Insurance Budget), which would reach 15 billion RON in 2024, 17% higher than the preliminary execution in 2023.The VAT increase is 15% compared to the preliminary execution for 2023, the nominal amount of the increase being 15.8 billion RON.As for spending, the Concordia Employers' Confederation argues that streamlining public spending is a prerequisite and there can be no fair fiscal consolidation without holding the state and its institutions accountable."Although we do not have in mind a detailed analysis of spending in this document, we quote once again the opinion of the Fiscal Council which shows that they could be 4.5 billion RON higher in relation to expenditure on goods and services and social assistance, representing about 0.26% of GDP. The Fiscal Council further says that Romania needs to spend more efficiently and therefore spending reviews, a tool frequently used in OECD countries, are necessary," the authors of the report add.Concordia representatives also said that this year's experience has shown us that although the Government has the political authority to propose whatever budget it wants, if it is built on unrealistic revenue estimates and forecasts, the consequences are primarily borne by the tax payers.