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The authorities propose to reduce the deficit by 0.74% of GDP per year; by 2031, the deficit would fall to 2.4% of GDP

November 14, 2024

The Bucharest authorities aim to reduce the budget deficit by 0.74% of GDP per year so that by 2031, the negative balance will fall to 2.4% of GDP, government sources said. This is included in the Fiscal Plan which should be lodged in Brussels until 25th October.‘The consolidation of the sustainability of the public finances for the period 2025 to 2031 will be made by getting within the values of the macroeconomic values included in TFEU, namely a budget deficit of 3% of GDP and a public debt under 60% of GDP” said the quoted sources.According to them, the plan envisages maintaining the single tax rate, an approach that ensures the continuity of a simplified, manageable and predictable tax system for taxpayers, without introducing progressive taxation. The plan does not involve lowering the tax threshold for micro-enterprises, allowing them to maintain their existing tax benefits, the sources said.   On the other hand, the document includes the annual rhythm of public investments to ensure the complete absorption of European funds allocated through Cohesion Policy of 46 billion euro as well through the Mechanism for Recovery and Resilience of over 29.7 billion euro which correspond to the implementation of a volume of investments of over 7.9% of GDP in 2025, 7.7% of GDP in 2026, 6.6% of GDP in 2027 so that in the last part of the PFTM the average annual environment of investments be over 5% of GDP.Estimated investment expenditure for the period 2024-2031 amounts to over 1. 147 billion lei, as follows: RON 120bn (6.79% of GDP) in this year, RON 149.9bn (7.87% of GDP) in 2025, RON 158.3bn (7.73% of GDP) in 2026, RON 144.5bn (6.58% of GDP) in 2027, RON 143.1 billion (6.09% of GDP) in 2028, RON 144.7 billion (5.77% of GDP) in 2029, RON 144 billion (5.38% of GDP) in 2030 and RON 142.8 billion (5.02% of GDP) in 2031. The plan for seven years for the reduction of the budget deficit means the creation of the legal framework for the support of strategic investments in the economy for the manufacturing industry, the purpose being to ensure the green and digital transition for the manufacturing industry of Romania as well as access to the grants allocated from the state budget depending on the specific of the investments, to fiscal facilities, access to public utilities and access to authorization of the necessary investments through the deblocking of the system of offering agreements specific for those categories of investments surpassing the value of 150 million euro. The authorities take into consideration the creation of a data basis which follows the average costs of the public institutions and which will help with the identification of the deviants and excessive expenditure.’ Through the implementation of a control mechanism for increasing of costs of over 20% against the average, the reform limits waste and imposes a rigorous justification for every significant surpass’ shows the quoted source.The plan means the reduction of subsidies and other forms of aid on the part of the state budget for the state companies which will be encouraged to improve their efficiency and generate the necessary income to function automatously without depending on public funds.Among the measures proposed for the reduction of operational expenses in the state companies is the reduction of useless consumption and renegociation of contracts with suppliers.Moreover, a centralised system of public acquisitions which will allow contract more favourable conditions through the consolidation of demands at national level. ‘This will lead to the reduction of risks connected to corruption and inefficiency. There will be norms for expenses which will observe the reduction/stabilization of expenses for the functioning of the main categories of public services, on the basis of the average costs for goods and services calculated on the basis of the data covering information from Ro e-factura’ the quoted sources said.Premier Marcel Ciolacu stated on Wednesday that the government ‘reached an understanding’ with the European Commission with regards to the fiscal plan for the reduction of deficit and said that it is essential that the EC experts agreed that Romania needed a period of seven years to make major projects of investments in the economy.A spokesperson of the European Commission said, for Reuters, that the community executive agreed with Romania the postponement until 31 January 2025 of the limit term until the country could present the plan for the reduction of the budgetary deficit.Romania is subject to an excessive deficit procedure as early as 2020, under which it has to present to the European Commission a multiannual plan to bring the deficit back below the 3% of GDP threshold.

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