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October 6, 2022

MFP: End-of-year government budget deficit at 2.88 pct of GDP, same as in 2017

Romania closed 2018 with a general consolidated budget deficit of 2.88 percent of GDP, the same as in 2017, shows data released by the Ministry of Public Finance (MFP) on Monday.

The budget deficit is thus below the target of 2.97 pct of GDP set by the authorities.

Revenues to the government consolidated budget, of 295.1 billion lei, accounted for 31.1 pct of GDP, compared to 29.4 pct of GDP in 2017. In percentage points, revenues were 17.2 pct higher in nominal terms compared to 2017. Revenues from social security contributions increased by 36.8 pct as a result of the rise in employee numbers, in the average gross salary earned, the minimum wage, but also under the effect of changes to the law regarding the transfer of the contributions from the employer to the employee, the Finance Ministry said.

VAT revenues were 11.3 pct higher as to 2017, standing at a full-year amount of 59.6 billion lei.

Revenues from excise duties amounted to 28.5 billion lei (3 pct of GDP), up 7.2 pct year-on-year, while revenues from property taxes and fees increased 2 pct compared to 2017; non-tax revenues increased by 24 pct under the positive influence of dividend payments.

Revenues from wage and income tax dropped 24.8 pct due to the reduction of the income tax rate from 16 to 10 pct beginning January 1, 2018, which reflected in lower collections starting with February 2018.

According to the note on the execution of the general consolidated budget for 2018, collections from the tax on the use of goods, the authorization of the use of goods or the carrying out of activities dropped 42 pct as a result of the enforcement of OUG No. 52/2017 on the refunding of the special tax on cars and motor vehicles, the pollution tax on motor vehicles, the tax on motor vehicle emissions and the environmental stamp for motor vehicles.

Amounts from the European Union for payments made stood at 27.1 billion lei, 57.8 pct higher than in 2017.

Spending of the consolidated general budget amounted to 322.4 billion lei, 16.8 pct more than in 2017, with personnel expenses having recorded the most significant increase, of 23.7 pct compared to the year before, against the backdrop of the wage rises operated under the Public wage law.

Spending on goods and services increased by 9.8 pct over the previous year.

There was a significant increase in local budgets, the budget of the National Health Insurance Fund and the budgets of public institutions financed from their own incomes and budget subsidies.

Subsidies increased by 7.6 pct compared to 2017, accounting for 0.7 pct of the GDP, the same as in the year before.

Interests expenses were 27.8 pct higher than in the previous year, accounting for 1.4 pct of GDP, with a peak in October, due to several benchmark government securities reaching interest payment due date.

Social assistance expenditures increased by 9.5 pct compared to the previous year, mainly as an effect of the successive increase of the pension point by 9 pct as of July 1, 2017 – to 1,000 lei – and then by 10 pct beginning July 1, 2018 to 1,100 lei; of the increase in the social allowance for pensioners from 520 lei to 640 lei; and of the increase and change in the calculation method of the monthly child allowance and of the insertion incentive.

Investment spending, including capital expenditures as well as expenditures with development programs financed from domestic and external sources amounted to 34.2 billion lei, 27.9 pct higher than in 2017.

Finance Minister Eugen Teodorovici announced earlier this month that the budget deficit for 2018 will be below 2.97 pct of GDP, and will narrow to 2.5 pct of GDP in 2019.

This November the European Commission cautioned that Romania’s public deficit had increased from 0.5 pct of GDP in 2015 to 2.9 pct of GDP in 2016 and is projected to reach 3.3 pct of GDP in 2018, 3.4 pct of GDP in 2019 and 4.7 pct of GDP in 2020, the highest in the EU.

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