The problem of reducing spending by 20 billion lei arose because the budget for 2023 was poorly drawn up, regardless of whether the authorities (government) want to admit it or not. Several economics professors from ASE discussed this topic in debate.

There was also talk of the abolition of tax benefits, and everyone agreed that this should happen gradually.

Very briefly:

• The elementary principle of prudence says that it is not good to build a budget on desired incomes – Daniel Dayanu, President of the Fiscal Council

• The trouble is that we live with the state budget over the limit

• You can’t come and say: “Cut the cost of medicine. When you come to be hospitalized, take your medicine with you because we have reduced the cost of medicine.” – Christian Paun, ASE Instructor

• I was pricked with a wire, I went to the hospital, where there was an emergency room, but they did not give me a tetanus shot. How is this possible? He sends you to the pharmacy to buy. Can you cut health care costs? – Jonuts Dumitru, economist

• It is not the goal to increase the share of budget revenues by increasing taxes, focusing on the average level in the EU. I can find no economic basis for this – Lucian Croitoru

• We drank cold water last year, when we had unexpectedly high inflation, we had revenues from energy carriers, which are also no longer there, although we included them in the budget. This shows how the budget planning for 2023 was carried out – Ionuc Dumitru, economist

• The hole exists. Anyone who says it doesn’t exist is telling a naive story. The elephant in the room is the 20 billion lei that must be solved this year – Tenase Stamule – ASE Professor

• If we do nothing and continue like this, we will reach a hard landing: real estate collapse, currency collapse, very bad – Basarab Gogoneață, ASE teacher

• 30% VAT, mass layoffs. That would be the scenario I fear. It can happen much faster than we imagine – Basarab Gogoneață

• ​VIDEO The head of ANAF explained why the 2023 budget was drawn up incorrectly. What the Minister of Finance did not take into account. They didn’t even ask ANAF if they could collect that much

Elementary principle: do not build a budget on the desired income

“The elementary principle of prudence says that it is not good to build a budget on desired, even assumed, incomes. This principle prohibits you,” Daniel Dayanu, president of the Fiscal Council, referring to the 2023 budget during a debate organized by the Konrad Adenauer Foundation.

According to him, “it will be very difficult (not to adjust the budget) because we have an economic recession everywhere, there are still problems in supply chains, inflation is not helping us now.”

“The lower the inflation, the worse it is for budget execution. No more unexpected inflation. Very difficult. 2024 will be even more difficult, not because we have an election year, but because the macroeconomic data will show you. It will be a show for the Government to bring the deficit to 5%,” said the president of the Fiscal Council.

The disaster, he says, is that we live with the state budget beyond our means.

“We have a public debt of about 50%. Above this it becomes dangerous. If the markets feel that we are unable to correct, we may be forced to pay more and more,” he said.

• The problem is that you have a large structural deficit that you need to reduce.

Raising taxes is not the goal

Lucian Croitoru, Chief Monetary Policy Adviser to the Governor of the National Bank of Romania, spoke on his own behalf.

“Increasing the share of budget revenues due to tax increases due to targeting the EU average level is biased. I cannot find an economic basis for this. That would be wrong,” Kreitoru said.

• “In Romania, 27% (there is no revenue in GDP). In the USA, Japan and Switzerland, the share of income in GDP is 27% or less. Do you think that the governments of these countries are not doing their job for their citizens?”

In his opinion, raising taxes now would be a confirmation of the entire wrong policy of wage growth.

• This happened between 2017-2019 and I am now going to confirm it because of the tax increase?

“Progressive tax, in my opinion, does not work. He can bring nothing. This does not contribute to the reduction of inequality, which is the central value of society today,” he emphasizes.

Economist: They sent to the pharmacy to buy a vaccine against tetanus. Can you cut health care costs?

Ionuc Dumitru, chief economist at a commercial bank, says it’s an illusion to think we can cut costs.

“We did it before during the last crisis. I have 365 days of unpaid bills in the healthcare sector. Do you think it is possible to cut something in goods and services?” he asked.

• Of course, inefficiencies exist everywhere. But you have to do something structural. A centralized system of public procurement, for example, would help a lot. If you don’t, how can you reduce your spending on goods and services? Most of them are in the field of health care.

“During the Easter holidays, I went to the country, got stuck in a wire, went to the hospital, where there was an intensive care unit, and there was no tetanus vaccine. How is this possible? He sends you to the pharmacy to buy. Can you reduce health care costs?” he said

According to him, Romania is the country that entered the pandemic with the biggest budget deficit in Europe, we blamed the pandemic because there are big deficits everywhere, we are coming out of the pandemic with the biggest budget deficit.

“We have not solved the structural problems at all. We drank cold water last year, when we had unexpectedly high inflation, we had revenues from energy sources, which are also not there, although we included them in the budget,” he said.

With a smile, he said: This shows how the budget planning for 2023 was done.

• “We are left with a hard-to-accept reality that we are struggling with: a very large deficit. If we have 1% of GDP in 2 months, that is a lot. The problem is: what are the short- and medium-term solutions? What are we doing? 2024 is the next year. How we will reach 3% in 2024”.

They put money into the budget that is not available this year / A hole in the hands of large taxpayers is a lie

Tănase Stamule, professor at ASE, says that 10 billion in VAT revenue from Romgaz, Hidroelectrica, etc. have been budgeted.

“These large taxpayers who are unable to pay what they paid last year, other industries that pay excises paid them in advance in December so that we have a smaller deficit. The hole in the big taxpayers is a big lie, because this money was never real in the budget of Romania,” he explained.

• Blaming ANAF when you didn’t consult Treasury when you budgeted is a sad reality.

“Okay, the hole exists. Whoever says that it does not exist is a naive story. The elephant in the room is the 20 billion lei that must be resolved this year. 3 billion will be solved by a hiring freeze as people retire and leave. A few billion from the retaxation that passed through parliament for certain companies. There will be several billion more from the reduction of goods and services: 2-3 billion,” Stamule also noted.

A country generally has 4 things that make it attractive, says the professor:

1. Market size: how many citizens do you have?

2. Quality of physical infrastructure: roads, bridges, etc

3. Quality of human infrastructure: universities, schools and hospitals

4. Fiscal system

“Romania has a developing middle market, the physical infrastructure is not yet very attractive, the human infrastructure is the same. The only very attractive thing about Romania is the tax system, especially for micro-enterprises. With an 8% dividend, we are still attractive,” he said.

• If we change what is the only attractive thing without accelerating the improvement of physical and human qualities (that you can’t increase the population that fast), the question becomes: what makes us attractive?

• How attractive will we be if we no longer have low taxes? Why should companies come to Romania if we don’t have something extra compared to other markets.

Let’s make reforms: reduce ministries, departments, unite districts

“Let’s reform. Let’s reduce ministries, departments, unite districts. Let’s take a look at the sharing policy. Let’s carry out reforms,” ​​said Christian Paun, ASE teacher.

• You can’t come and say: reduce the cost of medicine. When you come to the hospital, take your medicine with you, because we have reduced the cost of medicine. I have a problem with these spending cuts that have no reform side.

• On the revenue side: no tax increase. Governments that govern by raising taxes are weak. They cannot do anything else, reforms, reconstruction. So what should I do? Failure to raise taxes.

“We have a solution to the fiscal chaos. Regarding VAT, we have legislative chaos. That’s where we lose the most,” Paun said.

• We collect as much VAT as we need, but then we settle it with VAT non-payers and as a result we lose 40% of VAT due to regularization, according to estimates by European institutions.

• As for tax evasion, it amounts to 33% of GDP. We are the third in the EU after Croatia and Greece.

If we do nothing… hard landing: 30% VAT, massive cuts

“In the course of macroeconomics, I tell students that we have all the symptoms of an inflationary gap. We have high inflation, very low unemployment,” said ASE teacher Basarab Gogoneatse.

• “I’m tired of listening to announcements on the radio: we’re hiring, we’re hiring, we’re hiring. If we do nothing and continue like this, we will have a hard landing: real estate collapse, currency collapse, very bad.”

“Then there will be drastic adjustments. 30% VAT, mass layoffs. That would be the scenario I fear. It can happen much faster than we imagine,” Hogonyatsa also noted.