Fiscal Council points out existence of major risks for consilidation process according to present budget

  The budger construction for 2024 is compatible with a cash deficit of 6.4% of GDP, based on a prudent approach of incomes and expenses, the Fiscal Council considers. “Based on a prudent approach of incomes and expenses, the Fiscal Council considers the budget construction for 2024 is compatible to a cash deficit of 6.4% of GDP. The evaluation of cash deficit has in view data of the Fiscal Council, uncertainties on the final form of measures adopted by authorities and the hypothesis that there will not be a forced cut of expenses. In these conditions, the Council points out the existence of major risks for the consolidation process, according to the present budget construction”, according to the Budget Council in the Opinion on 2024 state budget law, the 2024 state social security budget and the Fiscal-budget Strategy for 2024-2026.   The budget construction for 2024 has in view a target of sach budget deficit of 5% of GDP, representing a reduction by 0.94% of GDP, against the level estimated by the Finance Ministry for 2023 (5.94% of GDP). The level of budget deficit target ESA 2010 for 2024 is 4.9% of GDP. The foreseen cash deficit cash reduction in 2024 takes place by reducing budget incomes by 0.92% of GDP, while budget expenses are reduced by 0.02% of GDP.   According to the Code, factors influencing the programed dynamics of budget incomes in nomina; terms in 2024 are represented mainly by the macroeconomic frame for next year, the adopted fiscal policy meaures, the range of hypothetical incomes having as source the improvement of ANAF collection/digitization efficiency and the anticipated evolution of European funds absorption.   “The Fiscal Council (FC) cannot take into account the inclusion of hypothetical incomes of 19 billion lei coming from the improvement of of collection/digitization efficiency of ANAF, in virtue of the prudence principle. Consequently, FC considers impossible collecting incomes lower than 19 billion lei, representing 1.1% of GDP against the targest assumed in the draft budget,” the Opinion released shows.   The evolution of planning budget expenses, expressed as GDP share, is the result of increasing expenses with projects financed from European funds, staff expenses, social security and other expenses, balanced by subsidy cuts, other transfers and expenses with goods and services, FC shows, considering as probable the additional need for budget allocations of 4.5 billion lei at the level of expenses with goods and services and social assistance, representing about 0,26% of GDP. According to the source, Romania's most serious problem (besides foreign deficits and institutional weaknesses) is budget deficit which in 2023 remained 6% of GDP. Romania is under the incidence of the procedure of excessive deficit and seems to have the highest structural deficit in EU.   In context, FC representatives show that a correction of the deficit should be made mainly on incomes, as long as Romania has very low fiscal incomes of 27% of GDP, while the EU average is over 40% of GDP.   “The correction of deficit should be made on incomes. In an EU state with very low fiscal incomes, about 27% of GDP, when the EU average is over 40% of GDP, with massive subfinancing of public education and health, with fiscal evasion and avoiding paying almost institutionalized taxes, with a VAT collection delay of over 36% compared to the EU average of 5%, this is the sensible, logical alternative,” FC shows.   Fiscal measures, adopted by the government in 2023, could have an impact of 1% of GDP in 2024 but additional measures are needed to reduce budget deficit by 3% of GDP in a few years.   On the other hand, FC warns that the new pension law will have a serious impact on an average and short term. “The new pension law is needed to eliminate inequities, to take into account the aging of the population.But this impact is serious, it increases deficit a lot, considering permanent expenses,” the document shows.   In these conditions, FC pleads for the continuation of fiscal reform showing that fiscal evasion and fiscal improvement must bluntly tackled, the source mentions. “In 2027-2028 Romania might have fiscal incomes over 30% of GDP through fiscal reforms and in the labor market, through a better fiscal income collection. FC considers that such a fiscal income level is necessary, considering present and future challenges,” the document shows.   Referring to this year's budget execution, FC mentions that the latest data on 2023 budget execution shows that cash decifit exceeded by 39-40 billion lei the target established in the initial budget (4.4% of GDP), reaching about 6.8% of GDP. However, in the context of a significant subexecution of capital expenses, there are premises for a 6% of GDP cash deficit in 2023.