Frames analysis: A financial agreement with the banks could help the State to avoid increasing taxes

Romania needs a special agreement with the mother banks of the financial institutions present in the country, similarly to the one signed at the previous economic crisis with the purpose of securing the Financing of the state in 2025 according to an analysis made by the consultancy company Frames.'A financial agreement of €8-10 billion would provide Romania with an absolutely essential 'breathing space' until the end of the year and would represent a solid argument in the eyes of foreign investors and rating agencies regarding the positive outlook of the Romanian economy,' the analysis says. According to the analysts in Frames, Romania has a serious financing problem at the present moment, and all efforts for the reform could be postponed due to this, the experts say.‘Irrespective of how well intentioned would be president Nicusor Dan and the future premier, the financial effects of the reforms proposed will be seen in time. The great issue, at the present moment,represents getting liquidity, money the state needs today to ensure the payment of obligations. And that chapeter we have a big issue. We have arrived to lend, on average, with approximately one billion euro per week to ensure the functioning of the state’ states Adrian Negrescu, Frames manager. According to the economic consultancy firm, the emergency financial solution is a financial agreement with the major foreign banks present in Romania, which would provide, for the next 6-10 months, the money the state urgently needs. 'President Nicusor Dan was talking about an amount of 30 billion lei that he is trying to identify in order to ensure that the deficit is kept at 7.5 per cent. An agreement with the parent banks to provide Romania with a €8-10 billion financing line could solve this problem. I don't see why the banks would refuse such an agreement, given that we have been in this situation before during the previous crisis when, in Vienna, the big foreign banks committed themselves to supporting the Romanian economy. They stand to gain anyway. They borrow at 2-3 per cent and will give the government in Bucharest this money at 6-7 per cent, which will ensure them a substantial gain'', the Frames analysis shows.   According to the quoted source, in order to avoid getting Romania in the area of junk and rebuild trust of the investors, the new governents have to change the traditional approach, focussed on increasing taxes.The fiscal reform supported by Mr.Bolos (Marcel Bolos, at present the miniser for European Projects and former minister of finances o.n) about whom nobody knows exactly what it contains, we cannot but estimate that it refers to increasing taxes, must be replace with a package of economic measures, outside the box, which could bring money to the budget rapidly and avoid increasing taxes – a measure extemely toxic for Romania’ said Adrian Negrescu.One of the solutions proposed by the consultancy company is represented by the restructuring of the way in which the Romanian state gets loans from the Romanians and the companies, through classic states emissions.According to analysts, the format of government bonds should be changed so that they are sold in all possible places, from department stores to petrol stations and other shopping areas.Almost 90% of the fiscal income of the state go, at present, on social expenses,and if we take into account the interests to the credits made over the last years, the state budget is blocked in these expenses valid for a country close to bankruptcy, consider the analysts of the company.'Romania has been borrowing €50bn every year for two years now. It wouldn't be a problem that it borrows, but if we look at the destination of the money we see some anomalies that raise serious questions - we borrow to pay pensions (about 40 billion lei in 2025), to pay salaries on time and we borrow to have enough money to build the investment projects undertaken by the National Programme for the Reconstruction of the Regions where we have started work without having the European money secured. It is the direct path to bankruptcy for the country if it goes on at this pace', the analysis adds.   As the budgetary deficit has surpassed 30 billion euro at the end of the year, a historic level we risk to surpass this year, it is necessary to have solid solutions for the reduction of public expenses.'The suspension of funding from the PNDL and Anghel Saligny programmes for projects to build stadiums, sports halls and cultural hostels is absolutely necessary. We can only put them back on the list of projects when we have secured European funding for such investments. In addition, there is a need to drastically reduce spending on state companies where, every year, we pay about 8 billion lei from the budget to keep a lot of bankrupt state companies in operation'', Negrescu says.   Another solution to bring money into the budget over the next 3-4 months is to extend reverse taxation to the whole economy. 'If we want, for example, to reduce tax evasion on VAT, it is absolutely necessary to decide this immediately, through an emergency ordinance. We have no time to lose and we estimate that, by means of reverse taxation, we could recover to the budget, in the next 3-4 months, €2-3bn of the estimated €8bn annual gap. Politicians will say they fear that Brussels will not approve such a project. Have we at least tried to propose this, to make a case study that concretely demonstrates the positive effects for the state budget?', Frames analysts ask. The alternative offered by the MFP - raising VAT from 19 to 21% - would bring only 6.5 billion lei to the budget by the end of the year, at best: 'This is a ridiculous amount when you consider that we borrow, on average, 5 billion lei every week,'' analysts say. Not even the taxes about which they discuss to be increased, from the profit itax to the dividend tax will not increase the income of the state with more than 103 billion lei in 2025.According to experts, beyond the introduction of reverse taxation, the state must come up with a credible government programme, with realistic figures, with a timeline of measures that would provide for the cancellation of the tax on the pole, the tax on the turnover of large companies and to abandon all the caps and subsidies currently in the budget. The increase in energy prices and the imminent liberalisation of the gas market, together with the effects of the depreciation of the national currency and other measures such as the lifting of the cap on basic food products and the liberalisation of the RCA market will bring inflation to a significantly higher level than the current one, probably 6-7%, and this will help the Romanian state. 'The coming waves of price hikes will increase budget receipts by at least 10billion lei by the end of the year, if not more. Yes, they will impoverish the population and exacerbate the problems in the economic environment - we may be entering a period of technical recession - but they will save the budget, at least from the perspective of keeping the deficit at 7-7.5%. A possible increase in taxes could have a negative impact on this trend because, in addition to the tax avoidance effects, they will further limit consumption and will send many companies, especially in the service sector, into the tax avoidance zone. Tax increases would be a kind of financial hara-kiri for Romania. I hope that politicians will realise the economic and image consequences associated with the attractiveness of the investment environment in Romania,'' Negrescu added.