New budget-related legislation promulgated

President Klaus Iohannis signed into law an order on tax and budget related measures

Corina Cristea, 27.10.2023, 14:00

Subject to an excessive
deficit procedure for several years now, Romania has undertaken to bring this
indicator in line by next year. But the deficit figures are still worrying: in
the first 9 months of the year, the deficit deepened by some EUR 3 bln compared
to the corresponding period last year.

The government spent more than
it collected, and according to official data at the end of September the
deficit was 3.55% of GDP. At this rate, economic analysts say, it is rather
unlikely that Romania will be able to meet the deficit target of 4.4% of GDP or
at least the 5.5% discussed by the authorities in Bucharest with Brussels.

The financial analyst Adrian
Codirlașu, vice-president of CFA Romania, says this is because in the budget
law drafted early this year, the expenditure was underestimated and revenues
were overblown, which might push the budget deficit even over 6% of GDP by the
end of 2023. The stakes are particularly high given that, unless this problem
is addressed, Romania risks losing substantial funding under the National
Recovery and Resilience Plan.

A large-scale set of tax and
budget related measures has been drawn up by the government, which took
responsibility for it before Parliament to rush its endorsement. The measures
include tax raises, new taxes and the scrapping of tax facilities. Delayed for
a month after the Opposition challenged it at the Constitutional Court, the
bill eventually reached president Klaus Iohannis’ office, and it was signed
into law on Thursday.

Some of the provisions in the Law
on tax and budget related measures to ensure Romania’s long-term sustainability
will take effect within days, while the others will be enforced as of January
1, 2024. Meanwhile, PM Marcel Ciolacu is also expecting proposals concerning
the reorganisation of ministries and government agencies and corporations, as
the budget reform is also intended to help reduce expenditure.

But figures suggest that these
measures are not enough, and more is needed in order for the deficit to be
narrowed by the end of the year and for Romania not to lose tens of millions of
euro in EU funding, PM Marcel Ciolacu explained, particularly since expenditure
usually tends to increase at year end. This is why a new emergency order is
required in order to reduce expenses, decision-makers in Bucharest announced.

By capping public sector and
city hall spending, including the expenses incurred with organising festivals
and competitions, Romania would have some room to breathe, and the risk of
undesirable financial consequences would be alleviated. Also, PM Marcel Ciolacu
traveled to Brussels on Thursday to persuade the European Commission that the
measures taken by his Cabinet are enough to keep the budget deficit on a
positive trend. (AMP)