The pay increase passed on Monday by Parliament will determine a growth of Romania’s budgetary deficit to rd 3.5pct of the Gross Domestic Product in 2017, way higher than the International Monetary Fund’s recommendation of 2pct of the GDP, on Wednesday said IMF resident representative for Romania and Bulgaria Alejandro Hajdenberg.
This will trigger a cut in investment spending or additional taxes, added Hajdenberg.
Within the IMF mission of March 2016, and also based on the subsequent updates, he said, IMF reached the conclusion that given the circumstances Romania’s deficit will exceed 3pct of the GDP in 2017 – rd 3.2pct of the GDP. After this pay increase, maintaining the deficit at 3pct of the GDP would be harder, Hajdenberg told AGERPRES on Wednesday, adding that the IMF estimates a net impact of the pay increase of 0.3 – 0.4 percentage points of the GDP.
He specified that the IMF has recommended Romania for 2017 a budget deficit not of 3pct of the GDP, but of 2pct of the GDP, so that it could create fiscal buffers and keep the public debt under control.
The IMF official also explained the reasons why a deficit higher than 3pct of the GDP is not good for Romania. He said Romania must keep within the limits imposed by the European Union of 3pct of the GDP; if this level is exceeded, he added, Romania will face an excessive deficit procedure and gets its reputation harmed.
In addition, a higher than 3pct deficit shows that Romania has a pro-cyclical fiscal policy, he said, adding that the Romanian economy is already growing fast, and the relaxation generated by the pay increase will provide additional stimuli to the economy, which is not recommended for now. Moreover, said the IMF official, a VAT cut from 20pct to 19pct comes into force in 2017, along with the repeal of the over-excise duty and tax on special structures included in the Tax Code, which will stimulate more the private consumption.
According to Hajdenberg, the pay increase adds to this fiscal relaxation, which could trigger the resumption of a series of developments noticed in Romania before the crisis that should be avoided.
The IMF official says the pay increase does not resolve the distortions of the public sector’s pay system and will also harm the competitiveness of the Romanian companies on foreign markets.
As regards the competitiveness, this could be affected by the fact that the private companies will be pushed to raise salaries in their turn to draw or preserve their employees, tempted by the increased wages in the public sector.
If the wage increase is enacted and the Tax Code measures are enforced, despite the IMF having recommended their being postponed until the economic conditions will allow it, Romania will have but two possibilities: to either increase incomes (which could mean new or higher taxes) or cut expenses, or both in order to maintain the 3pct of the GDP deficit target. Therefore, a part of the pay increase could return to the citizens under additional taxes or investment spending cuts.
He warns that the salary increase has a permanent effect, meaning they should be paid regardless of the economy going well or getting slower.
The IMF acknowledges the need to raise pay in the public sector, but it says the raise should be carried out in a sustainable way, based on a systematic analysis that should consider simultaneously the system’s distortions and the available fiscal space.
At a plenary session on Monday, the Chamber of Deputies passed Ordinance No. 20/2016 with amendments brought by the specialty committees which approves salary increases of 15pct on the average for the public education and healthcare staff.
PSD asks PNL and Premier Ciolos not to challenge salary hikes ordinance
The Social Democratic Party asked the Liberals and Premier Dacian Ciolos on Wednesday to give up their attempts to block government emergency ordinance no.20/2016, which stipulates salary hikes for the education and healthcare sector, by challenging it at the Constitutional Court of Romania (CCR).
“PSD is asking PNL and Dacian Ciolos to give up their attempts to block this law by challenging it at the Constitutional Court. Doing so would be proof that PNL and the technocratic Government are taking into consideration what is good for Romanians who want to join the middle class, instead of what would be good for their political interest,” reads a PSD communique.
According to the Social Democrats, through the decision adopted on Wednesday the Lower Chamber’s Standing Bureau is taking another step toward making sure the education and healthcare sector employees earn higher salaries.
“We congratulate the Lower Chamber’s Standing Bureau for the decision to validate the vote cast on the law concerning the adoption of government emergency ordinance no.20/2016, despite the unjustified pressures and accusations. The law repairs the inequities of the Government’s ordinance and introduces salary hikes for education and healthcare sector employees. The decision taken today by the Standing Bureau is the good news Romanians had been waiting for. It is, at the same time, a sign of respect and recognition of the work that these people are doing every day in order to take care of the education of future generations and to save lives. PSD considers that we have to use economic growth to bring more Romanians into the middle class,” reads PSD’s communique.
The Lower Chamber’s Standing Bureau has decided not to repeat the vote that took place on Monday, when several bills, including the one concerning the amendments brought to government emergency ordinance no.20/2016, amendments introducing salary hikes for public sector employees, were adopted. The Liberals’ challenge has thus been rejected.
PNL asks the Court to check the quorum, challenges the GEO no.20 on salary increases to CCR
National Liberal Party (PNL) will ask the Court to check if the quorum provided by the Regulation was respected at the meeting in which the GEO no.20 on salary increases was adopted, stated on Wednesday the leader of the PNL Deputies, Eugen Nicolaescu, saying that Liberals will challenge the law to the Constitutional Court of Romania (CCR).
“The PNL parliamentary group will ask the Court to check if the quorum was provided or not in this meeting and if legal documents have been adopted by defrauding the voting”, stated Nicolaescu at the end of the meeting of the Permanent Bureau of the Chamber of Deputies, who rejected the Liberals’ request to resume the voting.
PNL will also challenge the law on salary increases to CCR, immediately after it will be signed by the President of the Chamber of Deputies, Florin Iordache, added Eugen Nicolaescu.
The leader of the PNL Deputies claimed that the PSD-ALDE majority in the Permanent Bureau refused to take into account “the clear proofs” presented by Liberals to check the quorum.
“Despite the clear proofs presented by us, the PSD-ALDE majority in the Permanent Bureau refused to consider them, they didn’t even want to take into account the fact that they have to face documents that they should analyze and to take an informed decision”, said Nicolaescu.
The PNL Deputy also challenged the voting on the request of checking the quorum by roll call, stating that the Regulation doesn’t provide that the request of a group leader to perform a check of the quorum by roll call is subject of any voting.