The budget rectification infringes several fiscal budgetary rules, the most important being the deficit target, and it was devised starting from unrealistic projections, just one example being the sums from income tax and insurance contributions, which were overestimated by RON 1 bln, the Fiscal Council warns in an opinion issued on July 30 and released yesterday, when the government decided the first budgetary rectification of the year.
“The infringing of the fiscal-budgetary rules by the draft budget rectification gravely undermines their credibility, especially with regard to the failure to respect the budget deficit target,” explains Ionut Dumitru, president of the Fiscal Council.
The Council mentions that it was informed by the Ministry of Finance about the rectification the previous evening, so it did not have time to make a thorough analysis until the project is approved by the Executive.
“The dynamic of the earnings from the income tax, compared to the similar period of the previous year, is predicted to accelerate to 10.8 pc at the end of 2013, against 9.29 pc at the end of the first half of this year, while the annualised rate of salary increases in economy in June diminished to just 3.7 pc, which makes the estimation for the end of the year seem unrealistic,” the Council mentions in a completion to the budget rectification.
The Council warns that the estimations regarding the tax on incomes and salaries were not revised downwards at the budget rectification, while the 7 pc wage increase rate taken into account when drafting the initial budget appears as “very optimistic” at this moment and the increase of the number of employees, as well as the “discretionary” measures that were taken do not seem enough to compensate the unfavourable dynamic of the salary gain.
The same reasoning is applied to the sums collected from insurance contributions, which are expected to advance by 6.2 pc at the end of 2013, against last year, while the annual growth rate at 6 months is 4.26 pc, which makes the estimation seem unrealistic.
Major failure in the absorption of European funds
Against the background of low private consumption, the Council considers that there are risks for the failure to meet the planned incomes from VAT and is reserved over the positive impact of the increase of excise duties on alcohol and luxury products upon budget incomes.
“Meeting the targets with respect to attracting European funds seems a major challenge, as the targets are practically unrealistic, as the budget provides a 52.3 pc increase over the sums attracted in 2012, and the execution at 6 months reveals a 5 pc diminishing compared to the same interval of last year,” reads the document of the Fiscal Council. The sums repaid by the EU to the account of made payments had an evolution much under expectations, with the semestrial programme being completed only in a proportion of 47.6 pc, which reflects a major failure in the absorption of European funds, add the analysts.
Experts say that, although the economic advance was revised upwards from 1.6 pc to 2 pc, its structure does not favour the increase of incomes to the budget, while the incomes collected will probably be under the estimated level.
The Council also considers that the increase of the efficiency of expenses with goods and services is not possible on a medium term without very deep structural reforms, especially in the health system, and without increasing the efficiency of the public acquisitions system in general.
The expenses with interests seem over-evaluated, in the context of a significant reduction of financing costs during the first seven months. “As a conclusion, in the opinion of the Fiscal Council, meeting the new budget deficit target set for this year seems largely dependent of achieving budgetary incomes, which seem to be optimistic, the risks being tipped towards the negative side, respectively smaller incomes than those provided by the draft budget rectification, which must be compensated through a very strict control of expenses and by strengthening the efforts of improving the collection of budgetary incomes,” warns the Council.