Budget revision: Romanian government cuts spending on education, infrastructure to finance pension raises, local budgets

Sorin Melenciuc 06/08/2019 | 12:05

The Romanian government is planning to cut spending on education and infrastructure in order to finance pension increases and local budgets, a key measure to boost support from mayors for the ruling coalition before the next election cycle.

According to the budget revision draft, spending on education will be cut by RON 1 billion this year, despite the fact that the eastern European country has already the lowest level of public spending on education in the EU.

The government also prepares to cut spending on infrastructure by RON 129 million, on business environment by RON 243 million, on agriculture by RON 310 million and on research and innovation by RON 369 million.

The budget revision includes an increase of the local budgets by RON 4.4 billion, out of which RON 1.5 billion for PNDL, a government scheme to finance local investment without much spending control.

The Finance ministry’s budget revision draft maintains the budget deficit to 2.76 percent of GDP but raises the GDP forecast to RON 1,031 billion, from RON 1,022.5 billion.

The total budget spending is increased by RON 3.95 billion while total revenues are estimated to grow by RON 3.75 billion.

Loss of electoral support

These measures are also linked to the plan to increase wages from September 1st, a key-measure of the ruling coalition desperately searching for electoral support.

The two ruling parties, PSD and ALDE, lost much of their electoral support following many corruption and bad policies scandals.

The last major scandal was the murder of a 15-year girl in Caracal, a tragedy that shocked Romanians and exposed the incompetence, unreliability and disdain of public servants when it comes to regular people in Romania.

The government was the first to pay the price: protests were organized in many large cities by people carrying placards with messages like “Police kills!” or “You killed her!”.

Faced with this level of public rage, the government responded by carrying out some dismissals: the chief of national police was sacked, while the chief of the STS (a secret service running the 112-emergency service) and the Minister of Internal Affairs both resigned.

Some police chiefs from Olt county and Caracal town were also fired, but the public remains dissatisfied and the bad public services continue to fuel this discontent.

After years of politicization and de-professionalization across most public services, ruling party PSD now seems to be paying the price, as it’s been revealed that it has no human resources able to run a complex murder investigation.

New taxes, personel spending cuts

Romanian government is also planning to introduce new taxes for sugary soft drinks and big pensions, raise taxes for cigarettes and cut spending by reducing bonuses and staff in the public administration, according to a draft emergency decree released earlier by the Finance Ministry.

The plan was put together by the government due to the fact that it is running out of resources to cover soaring spending on wages and pensions.

In the first half of this year, the budget deficit increased to RON 19.96 billion or 1.94 percent of the gross domestic product (GDP), according to data from the Finance Ministry, which represents a 38.5 percent rise compared to the deficit of 1.4 percent of GDP recorded in May 2019.

Compared to H1 2018, when the fiscal gap totaled RON 14.97 billion, the public deficit rose by 33.4 percent.

The main fiscal measures proposed by the Ministry of Finance:

  • Progressive taxes on pensions over RON 2,000 – 10 percent tax for pensions between RON 2,000 – RON 7,000, 30 percent for pensions between RON 7,000 – RON 10,000, 50 percent for pensions over RON 10,000.
  • New tax on soft drinks with high sugar content.
  • Higher excises on cigarettes (+4.2 percent) from September.
  • Bonuses for state employees: some bonuses eliminated (e.g. the 15 percent-bonus for hazardous conditions); other bonuses capped.
  • Cutting the number of state secretaries in ministries and their staff.

The new plan is expected to be approved by the government through a decree.

Tensions in the ruling alliance

The first budget revision of 2019 has aroused tensions between the main ruling parties in Romania, PSD and ALDE, as the government is running out of resources and needs to cut spending.

The two members of the governing alliance are not agreeing on the areas where such spending cuts need to be made.

ALDE, the junior ruling party troubled by a severe defeat in this spring’s European elections, announced that it opposed the government’s plan to cut investments and spending in key areas such as infrastructure, education or health.

The budget revision was initially scheduled on July 31, but these disagreements have already delayed the key measure in a bad moment for the government, which is showing the first signs of running out of resources.

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