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February 28, 2021

Finance Minister on Romania’s fiscal and budget policy

Ioana Maria Petrescu joined Premier Victor Ponta’s center-left government in September 2013, as the Prime Minister’s advisor. After six months she became Finance Minister. At the age of 34 she is among the youngest public finance ministers in Europe. As minister, Ioana Petrescu stood out especially by promoting the lowering of the social insurance contribution by 5 per cent, a unanimously appreciated measure of support for the development of entrepreneurship in Romania. In what follows, we will present some of Minister Ioana Petrescu’s opinions on fiscal and budget philosophy, as evidenced by an interview for Agerpres.

Higher state budget revenues year-on-year. National Fiscal Administration Agency’s (ANAF) activity is better
Overall I am satisfied with ANAF’s revenue collection activity. I want to say that in September the plan was surpassed by RON 600 M. In July by approximately RON 1 bln, in August the plan was met. Overall in the first nine months the revenues collected totaled approximately RON 136 bln. Which means the plan was met 100.5 per cent in the first nine months. Compared to the first nine months last year we had a nominal growth of 5.7 per cent. If we are to differentiate based on the type of revenues, approximately RON 9 bln were collected in profit taxes – representing a 13 per cent year-on-year growth, approximately RON 17 bln in income taxes – a growth of 2.5 per cent year-on-year, approximately RON 38 bln in VAT – up by 0.8 per cent year-on-year, approximately RON 17.5 bln in excise taxes – up by 11.2 per cent year-on-year. In September – September was a very good month – the plan was fulfilled 104 per cent, and the year-on-year growth stood at 13.4 per cent. I think for the time being we are faring well in what concerns the revenues.
Lowering VAT from 24 back to 19 pc, not on the government’s agenda
This year we focused on pro-growth measures, especially in order to stimulate the private sector, fiscal relaxation measures, among them lowering by 5 percentage points the social insurance contributions (CAS) paid by employers, exempting from taxation the reinvested profit. These are measures that help out the private sector to invest, to hire, to start the economy’s engines. In what concerns the lowering of the VAT to 19 per cent, it would be a very good measure, I believe it would stimulate consumption and we are still considering it and I believe it will be done as soon as we have the budgetary room for it. It is a fairly large reduction but, one again, one that would be beneficial for stimulating consumption. This year we focused on encouraging the business environment in particular.
Neither the IMF nor the EC are in charge of the government, they are its partners
First of all I want to make it very clear that from my point of view the IMF and the EC do not represent a boss we have to report to, they are partners whose advice we seek on structural reforms, fiscal reforms. From the point of view of the CAS, I want it to be extremely clear that the IMF, the EC and we believe it’s an extremely good structural measure. Nobody has had a different opinion. What we discussed in June was also the manner of covering that accounting hole that came about as a result of lowering the CAS by 5 percentage points, and I was extremely adamant that I do not agree for a lowering of fiscality to be complemented by another tax hike. I was very adamant on this and it did not happen, as you know. Here we parted ways a bit, but we once again agree that it is a good structural measure and I feel it is extremely well that it came into force on October 1, with the help of Parliament, and I believe it will be a measure that will have beneficial effects on the business environment, especially given the fact that it is not doubled by taxes on the business environment. We have a precautionary agreement with the IMF, the European Commission and the World Bank, this hasn’t changed, we have a very good relationship. We have continued the technical discussions with them, we have had technical discussions at the end of July too, we have had informal talks in Brussels a few weeks ago, the talks were informal because their policy was not to get involved in the elections campaign, in order to avoid having their actions interpreted politically. So then they preferred for that not to be an official assessment mission now before the elections, but for us to hold technical talks outside the country. We talked about the budget adjustment, we wanted them to know what the revenues are so far, how we forecast them to be in the future, the sources from where we will cover the accounting impact of lowering the CAS, a measure that came into force on October 1, we talked about the budget deficit target, we should remain within the budget deficit target agreed with them. We also talked about other structural reforms we committed to in the latest letter of intent signed with them, about the reform in implementing private management in state-owned companies, these were very technical and applied talks and, in my opinion, very fruitful ones.
Future official meeting of the IMF, EC and WB
international troika – probably in early 2015 after new Romanian Government is sworn in
What I can tell you is that we had talks with them on this issue (the official assessment of the agreement in force – editor’s note), on my part and on the Premier’s part there is a desire for the IMF to return on an official visit, an assessment visit. One of the options discussed was for them to return at the end of November, early December, possibly for another technical discussion, probably on the 2015 budget, in order for a formal assessment to take place maybe early next year, possibly with a new government. And this stems directly from the IMF’s policy of not writing and signing a letter of intent with a caretaker government. If they feel there is the chance for the government to change after the elections then they would not want to sign a letter of intent let’s say at the end of November if there will be a new government a few weeks later. We are still discussing dates and possible alternatives, but this was one of the possibilities we discussed in Brussels.

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