The Annual Report of the Fiscal Council

According to data released by the Fiscal Council, Romania’s budget deficit may exceed 7% of the GDP by the end of this year

Mihai Pelin, 20.08.2024, 13:50

According to the Fiscal Council, Romania may this year register a lower economic growth than the government’s previous forecast of 3.4 %. In its annual report, the Council also warns that the budget deficit will exceed 7% of the GDP in the absence of a series of measures of fiscal-budgetary consolidation. The Fiscal Council recalls that the deficit, caused by higher expenses than returns, has exceeded in the first six months of this year 3.6% of the GDP, being 1.3% higher than in the same period last year. Calculations have revealed the risk that the budget deficit may even account for 8% of the GDP, as the new pension law and the recent pay rises in the public sector will generate additional costs in the second half of the year.

Against this background, the Council representatives have pointed out that in the absence of concrete and credible policies aimed at supporting the fiscal-budgetary consolidation on medium term as well as an improved tax collection system, the deficit stands chances to exceed the figures initially forecast by the national and European authorities for the period 2025-2027.

The Fiscal Council is made up of representatives of the Central Bank, the Romanian Association of Banks, the Romanian Academy, the Academy of Economic Sciences and the Romanian Banking Institute, being appointed by Parliament for a period of 9 years.

Romania, which already has an excessive deficit procedure launched by Brussels in its name, has, under the fresh European fiscal rules, seven years to go back to a budget deficit of 3% of the GDP. Pundits believe that in order to gradually curb this deficit one needs to implement a realistic programme.

The latest report Romania – Euro Zone Monitor made by a team of Central Bank experts coordinated by Academician Daniel Daianu, points to the fact that a rise in budget incomes is absolutely necessary and cannot be limited to only an improved tax collection system, but calls for amendments to the present fiscal regime, and a budgetary correction for a period of over four years.

In essence, the budget deficit is caused by excessive spending in a context of higher nominal incomes and rapidly growing expenditures, according to the report.

The pressure on the public budget is going to rise if we take into account Romania’s pledge to also spend 2.5% of the GDP for military purposes as a NATO member, the authors of the report say.

The extremely lower level of fiscal returns is the exclusive result of a fiscal regime which favored tax evasion and the inclusion of personal spending in the budget of various companies as well as illegal working contracts, the report also says.

(bill)