Last week, Prime Minister Nicolae Chuke threw some dust in our eyes when he said that after fixing the ministries, spending on goods and services would be cut by 10%.

Why

Well, if we look at the budget, we see that they are extremely small. Being small, a 10% reduction is unnoticeable. In other words, to exaggerate a bit, 10% of nothing is…nothing.

And now let’s select a few ministries (not all, so as not to get bored) to see how much spending on goods and services is in the general budget (data from the budget for 2022).

Ministry of Finance – 5.8%

Ministry of Economy – 4%

Ministry of Justice – 6.5%

Ministry of Labor – 0.54%

Ministries of education – 1.97%

Ministry of Internal Affairs – 1.53%

We do not continue. You got it. Ministries have other large expenses, such as salaries, and in the case of the Ministry of Labour, pensions and various types of benefits. Those with goods and services are very few, as you can see in the examples above.

What will the Government be guided by when making adjustments?

First of all, regarding the first series of tax increases, which comes into force on August 1 (implemented by OG 16/2022). From this, they are expected to collect almost 1.2 billion lei. In particular with:

• Excessive part-time taxation: ie for people who work two hours, such as cleaners, the employer will have to pay contributions for 8 hours (based on the minimum wage).

• The ceiling for construction, agriculture and food industry facilities is reduced to 10,000 lei: as Finance Minister Adrian Cachiu admitted, there are few people above this amount, so the impact will be small.

*Construction, agriculture and food industry are known to be exempt from income tax, health care contribution and optional level II.

(As you have seen over time, we are against any concessions, believing that the tax system should be fair. In the case of this text, we are only showing what the correction is based on)

• Also, in the same areas (construction, agriculture and food industry) there is a measure that is already in effect. Well, there was a change that went into effect on August 18th that if the company has other activities and the turnover criterion is not met within a month, then those services are no longer provided.

This means that for the same gross amounts, employees will have a higher salary in some months and a lower salary in others.

This means more money in the budget because sometimes Income Tax, Medicare and Tier II will be paid and sometimes not.

• The mandatory minimum excise tax for 1,000 cigarettes is increased from 563.97 lei to 594.97 lei.

• Increases the excise duty on alcohol, which means we will see an increase in prices: beer, wine and spirits will become more expensive.

• The tax on income from gambling is increased: up to 10,000 lei inclusive – 3% / over 10,000-66,750 lei inclusive – 300 + 20% for what exceeds the amount of 10,000 lei / over 66,750 lei – 11,650 lei + 40 % for what exceeds the amount of 66750 lei

These are the main tax increases that come into effect on August 1 (the bulk of the measures from January 1, 2023 – then the effect will be much greater).

Another positive influence is provided by the new assessment of economic growth made by the National Strategy and Forecasting Commission. They have increased expected nominal GDP, which means they can increase spending by the same projected percentage of the budget deficit. In addition, as a general rule, let’s not forget that the budget loves high inflation.

In summary, the Government relies on the tax increase introduced by OG 16/2022 when it comes to the budget adjustment that will be presented in August. If we talk about excessive taxation of part-time work, then whether workers will switch to undeclared work (as all experts predict) remains to be seen. Regarding the increase in excise duty on alcohol (on beer the increase is 20%), we may see an increase in smuggling, and regarding the criterion of turnover in construction, agriculture and food industry, perhaps some employees will want to switch to another company (which always meets the criterion), given that for the same gross net may vary from month to month (in some cases).

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