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May 24, 2022
BUSINESS

Gov’t paper: Recession looms again

Romania could be affected by a new crisis given the current ‘cataclysm psychosis climate’. 2012-2014 budget deficit still adjusted by personnel and premium cuts.

In the next three years, the Government still plans to reduce the budget deficit by resorting to the same old personnel cuts, renouncing the payment of the 13th wage and of holiday premiums and by keeping hierarchy coefficients in the Public System Wage Law frozen, Mediafax reports. The new austerity measures are included in the draft fiscal-budgetary strategy for the 2012-2014 period, Mediafax says.

The intention for the years to come is to reduce budget deficit to 3 per cent in 2012, to 2.4 per cent in 2013 and to 1.9 per cent in 2014. Any work done outside regular working hours will be exclusively compensated by free time also in 2012. Until next year, the total number of positions in the system will be cut to 1.24 M. ‘The wage envelope for the year 2012 has to be within RON 42.5 bln, or 7.1 per cent of the GDP. Salary  expenditure will continue to be capped to 6.7 per cent of GDP in 2013 and 6.4 per cent of GDP in 2014.

The ‘staged enforcement’ of the Framework Law on Salaries in the Public Sector will continue, with the reference value corresponding to the hierarchy coefficient 1.00 to remain at RON 600 in 2012 and with the wage class coefficient still inapplicable like this year. The personnel expenditure of the general consolidated budget for 2012 were established taking into account ‘salary rises awarded in two stages’, so that the pay cut operated in 2010 can be completely recovered next year.

On the other hand, the draft fiscal-budgetary strategy also points out that economic recovery is difficult and somewhat delayed and the effects of the earthquake in Japan bring back global recession to the discussion, and it may also affect Romania, given the ‘cataclysm psychosis climate’ also with a possible impact on markets. The Executive believes Romania can register 1.5 GDP growth this year, but it also considering possible risks. ‘Recession in Romania was one of the longest and deepest in Europe and the slow economic recovery anticipated for 2011, the ambitious character of intended corrections as well as the potential resurgence of political and social tension are all of a nature to slow down/defer the process of fiscal consolidation’, the document further reads.

The same strategy shows that the Government considers a drastic reduction of amounts payable to public sector workers under court decisions, that would fall due next year, from 34 per cent to just 5 per cent of the
total, in order for it to be able to honour its commitment to restore all wages in the public sector to the level before the cuts, in 2010. The provision is inclusively applied to teachers who have recently won a pay rise in court. The total amount representing court orders applicable to public sector employees until December 31, 2010, is about RON 7.5 bln, meaning that about RON 3 bln – 0.5 per cent of the 2012 estimated GDP, including inflation, would fall due next year.

Today, the government will request a confidence vote over the draft law capping the rise in the salaries of teachers who have won pecuniary entitlements in court.

FLAT TAX AND SAME VAT RATE UNTIL 2014

Social security contributions will be reduced by two percentage points in the second half of this year, but the flat rate and the VAT will stay at their respective current levels for another three years, with budget revenue already being calculated stating from the current values up until 2014.
On the other hand, the revenue of the general consolidated budget is estimated to grow from the RON 180.5 bln estimated for this year to RON 203.6 bln in 2012, RON 227.5 bln in 2013 and RON 253 bln in 2014, while the general consolidated budget expenditure should go up from RON 204.4 bln forecast for 2011 to RON 221.6 bln in 2012, RON 243.5 bln in 2013 and RON 266.4 bln in 2014.
A bigger revenue is also anticipated for the local budgets – between 5 and 10 percentage points in 2013 and 2014 compared to the 2008-2010 average, based on wealth, rents and land control and ‘rigorous evaluation’ measures, accompanied by the enlargement of the taxation base by levying taxes on specific categories of farmland. At the same time, the expenditure allocated to investment in the 2012-2014 period will represent 7.7 per cent – 9.4 per cent compared to 7.1 per cent -6.5 per cent in 2009- 2011.

MAYORS CAN INCREASE LOCAL COUNCIL TAXES ACCORDING TO ‘DEGREE OF ENDURANCE’ OF THE POPULATION

The Government will allow mayors to increase local council taxes and charges according to local needs and ‘degree of endurance’ of the population, by introducing a system whereby the taxable value of buildings and land situated within localities will be calculated starting from a bigger market value of the estate, the draft fiscal-budgetary strategy of the Government for the 2012-2014 period further states. It will become possible by the implementation of a system for the calculation of taxable value of immovable property starting from their market value where it is visibly bigger than the one determined by the calculation formula.

 

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