Foto: alexeynovikov/ depositphotos.com

Around the Easter holidays, while people were busy planning their vacations and family dinners, a highly controversial topic emerged on the public agenda: the budget deficit seems to be out of control and needs to be reined in quickly. In order to reach a semi-even keel, the state needs to cut costs by no less than about 4 billion euros. Figures released by the Ministry of Finance show that only two months into 2023, the budget deficit is already at 1.07% of GDP, running a very serious risk of missing the 4.4% target.

Fingers were quickly pointed at the ANAF for its inability to raise revenue. But ANAF head Lucian Heius explained that – in a broader perspective – the performance of his people is not so bad. Romania’s 27% share of tax revenue in GDP may seem low, especially compared to the 40% of other countries, but it is always a question of potential. Assuming that the Romanian state would collect everything it is owed, the maximum possible revenue at current tax rates would be 36% of GDP. The 40% of GDP achieved by other countries should be compared to their maximum potential of 50%. Considering how the ANAF is resourced and staffed, it is doing quite well, Heius suggested.

Then Prime Minister Nicolae Ciucă found the culprit elsewhere: large taxpayers.

But for experts, the obvious culprit for the deficit blunder seems to be the Finance Ministry, where budget calculations were severely bungled. Many economists accused the ministry of overestimating potential revenues, ignoring the fact that the good earnings levels of large companies in 2022 were based on extraordinary circumstances, especially windfall profits due to high energy prices.

It was not as if the government had not been warned repeatedly. In a statement issued before the budget bill went through Parliament, the Fiscal Council, an independent advisory body, estimated that budget revenues were likely to be 11.3 billion lei (0.73% of GDP) lower than the government’s expectations. Expenditures, the Fiscal Council argued, had also been underestimated – by a total of at least about 9 billion lei, or 0.58 percent of GDP. As a result, the Fiscal Council believed that the budget deficit was more likely to be around 5.7 percent of GDP, the report said.

These figures are more or less in line with what the government now realizes it has to cut from somewhere – as much as Finance Minister Adrian Câciu tried to downplay the problem in Parliament, saying that revenues would surely flow faster at the end of the first semester and that the 20 billion lei in spending cuts were simply the government’s response to the public’s overwhelming demand for a a ”lean state”.

Whatever the case, it is up to the ruling coalition to square the circle and cut costs without antagonizing the various stakeholders. Prime Minister Nicolae Ciucă has said on several occasions that neither investment nor public sector wages will be cut. Nor will tax rates be raised.

The fact that the government will stop hiring, freeze wages for employees, and ban pensions and wages to be cumulated in the public sector is certainly a step in the right direction. But will it be enough?

Alex Gröblacher

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