Government’s spending machine at full speed: Romania’s budget surplus fell by 64 pct in January on soaring wage, social spending

Sorin Melenciuc 26/02/2019 | 13:41

Romania’s budget surplus declined by 64 percent in January compared with the first month of last year, to RON 717 million (EUR 151 million), as soaring wage and pensions spending largely over paced revenues’ growth rate.

In January 2018, the budget surplus amounted RON 1.98 billion.

Official data show that budget revenues rose by 15.1 percent in January against January 2017 while expenses surged by 22.7 percent.

The general budget in January closed with a surplus of RON 717 million, or 0.07 percent of estimated GDP.

Surging wage, social, goods & services spending

Revenues from social contributions rose by 32.3 percent, VAT revenues increased by 23.1 percent, while revenues from income tax – paid by individuals – declined by 37.6 percent compared with January 2018.

In the same time, budgetary wage expenses increased by 23.5 percent against January 2018 and capital expenses declined by 12.4 percent.

Expenses with goods and services increased by 36.1 percent in January year-on-year.

Last year, Romania has managed to keep the budget deficit below the European Union’s ceiling of 3 percent of GDP as the official data show a fiscal gap of 2.88 percent of GDP at end-2018 in national “cash” terms, according to the Ministry of Finance.

However, two factors are still unknown for more accurate calculations: the value of GDP in 2018 and the value of budget deficit in EU standards (ESA).

The percentage of GDP depends of the final value of the gross domestic product. The government-controlled forecast body (CNSP) has estimated a GDP value of RON 949.6 billion (EUR 204.2 billion) for 2018, at a growth rate of 4.5 percent, but the statistics body recently said that the real GDP growth rate was 4.1 percent last year.

Lower interest expense

Experts are particularly concerned about the rapid increase of government’s interest expenses. Last year, interest expense rose by 27.8 percent up to RON 12.9 billion.

But interest expenses declined in January by 24.3 percent year-on-year, a situation that might prove temporary as the government has had little access to financing from local banks after it imposed a tax on assets since the beginning of this year.

Romania is the EU’s member state which pays the highest interest rates for its debt.

Romania’s sovereign 10-year bonds yield, a barometer for the cost of financing in the economy, is now close to 5 percent, amid growing concerns regarding the health of public finances.

New taxes and high uncertainties in 2019

Running out of revenue sources, the government has recently introduced a tax on bank assets of 1.2 percent per annum since January 1st, 2019.

The government also imposed special taxes of 2 percent of turnover on energy firms and 3 percent on telecom companies.

The budget bill voted in Parliament indicates a budget deficit of 2.76 percent of GDP in 2019.

In the absence of an approved budget for the current year, monthly budget spending in Romania is capped at 1/12 of the total spending registered in 2018.

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