Correction of the deficit should be carried out mainly in the revenue part. This is common sense, a logical alternative in a country with extremely low tax revenues – about 27% of GDP, when the EU average is more than 40% of GDP – with massive and chronic underfunding of education and health care, with tax evasion almost institutionalized , with a gap in VAT collection of more than 36% compared to the EU average. This is one of the conclusions of the Fiscal Council after a careful study of the budget for the next year.

The Fiscal Council says that the inclusion of hypothetical revenues of 19 billion lei, which come from the desired improvement in collection efficiency/digitization of the ANAF, cannot be taken into account.

Continuation of fiscal reform is necessary. Tax evasion and tax optimization must be tackled unabated, and tax reform also includes reforms to the labor market, which is highly distorted, said the conclusion published on Tuesday.

What the Fiscal Council says:

• The inability to achieve a credible adjustment based on transparent measures that correct the existing shortcomings of the current fiscal system (regressivity / high level of tax evasion, which is also determined by defective legislation, as well as ineffective institutional architecture), can lead to disorderly events in the economy.

• Romania’s most acute problem (besides the external deficit and institutional weakness) is the budget deficit, which in 2023 remained at around 6% of GDP. Romania is subject to an excessive deficit procedure and probably has the largest structural deficit in the EU.

• Romania needs to spend more efficiently, and therefore spending reviews are necessary, as is done in the OECD. For 2023, similar analyzes have been developed for health care and education.

• Fiscal measures adopted by the Government in 2023 would have an impact of approx. 1% of GDP in 2024. Additional measures are needed to bring the budget deficit to 3% of GDP in a few years.

• A new pension law is needed to eliminate the blatant injustice and take into account the aging population. But the impact in the near to medium term is serious, it increases the deficit significantly, being a fixed cost.

• The latest data on the implementation of the 2023 budget show that the budget cash deficit will exceed the target set by the initial budget (4.4% of GDP) by 39-40 billion lei, reaching a close level of 6.8% of GDP. However, in the conditions of a significant shortfall in capital expenditures, there are assumptions that the deficit of the cash budget in 2023 will amount to about 6% of GDP.

• The projected reduction of the treasury deficit in 2024 is due to an increase in budget revenues by 0.92 percentage points. GDP, and budget expenditures decrease slightly by 0.02 pp. GDP

• CF believes it is possible receiving lower revenues by approximately 19 billion leiwhich is approximately 1.1% of GDP compared to the targets set in the draft budget.

• The evolution of budgetary expenditure planning, expressed as a share of GDP, is mainly the result of an increase in expenditure on projects financed from European funds, personnel expenditure, social assistance and other expenditure, which is balanced by a decrease in subsidies, other transfers and expenditure. for goods and services.

CF estimates that the likely additional need for budget allocations in the amount of about 4.5 billion lei

• CF estimates that probably one additional necessary budget allocations of about 4.5 bln. lei at the level of spending on goods and services and social assistance, which is about 0.26% of GDP.

• The institution assesses the construction budget for 2024 as compatible with cash deficit of about 6.4% from GDP. The estimate of the cash shortfall takes into account the information available to the CF, uncertainty about the final form of the measures taken by the authorities and the assumption that there will be no forced spending cuts.

• Under these conditions, the CF signals the existence of major risks to the consolidation process under the current budget structure.

• According to the medium-term budgetary and fiscal basis, the budget consolidation in the period 2025-2027 is carried out exclusively on the expenditure side, the share of budget revenues in GDP shows a downward trend in the analyzed period.

• In its conclusions and analysis, the CF emphasized that macroeconomic adjustment and fiscal consolidation require a significant increase in tax revenues

• In the horizon of 2027-2028, Romania, thanks to tax and labor market reforms, thanks to better collection of tax revenues, through other reforms, can have tax revenues well above 30% of GDP. The FF believes that this level of tax revenue is necessary, given the current and future challenges.

Sound fiscal consolidation can calm markets and keep the economy attractive to investors. Together with reforms and major investments, this would increase potential GDP and support economic growth well above the EU average. This will also lead to a significant reduction in the current account deficit.

The CF understands that, in the absence of sufficiently concrete and credible policies to support the achievement of medium-term fiscal consolidation on the revenue side, as well as raising the levy level, the balance of risks is clearly tilted towards a record higher-than-expected fiscal and budgetary system deficit

for the period 2025-2027.

See the full conclusion of the Fiscal Council