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Daianau: What is taking shape in tax and budget measures is auspicious, but insufficient
The Romanian Fiscal Council (CF) believes that the package of tax and budget measures is auspicious yet insufficient, because the consolidation equation cannot be solved exclusively on the expenditure side, as tax revenues should also increase, CF Chairman Daniel Daianu said on Tuesday.
"Romania had to change tack. Although we had gone down with the government deficit, from the one recorded in the year of the COVID-19 pandemic to 7% of GDP in 2021, there was a risk that we would stop, the consolidation would not advance. And such a package was absolutely necessary. I also think, and we at the council appreciate that it is an insufficient package not because the International Monetary Fund (IMF) came and made the consultations (...) and not because the IMF experts said that it is an insufficient package. Indeed , this package can bring between 0.9% and 1.4% of GDP improvement in public finances. This year, our latest assessment shows that the deficit would exceed 6% if no spending restraint measures are taken. Fiscal measures are unlikely to have a significant impact in 2023. So without significant expenditure control measures (...) the deficit would be around 6%, if not past 6% of GDP this year. It will be very difficult for us to reach 5.5%, but it is possible. It is important to give this signal," Daianu told the Banking Forum conference organised by Financial Intelligence.
He added that in Romania "they ran away from reality" when considering that there is no need for additional income and that everything boils down to cutting expenses.
"We in Romania ran away from reality. We did not understand that for years we lived beyond our means, which is also visible in the external deficits, not only in the internal deficits (...) This rejection of reality, this refusal of reality is also accompanied by a mythology, by propagated myths: that there is no need for additional tax revenues, that everything boils down to cutting expenses. When I hear economists say something like that, I say: Sir, in what sphere do these people live? Did they pick up the pencil? Are they doing some serious, applied analysis? (...) Of course, it really helps for the image to be able to reduce by half the number of secretaries of state and advisers. That does not solve the problems of the national budget," said Daianu.
He added that the consolidation equation cannot be solved exclusively on the expenditure side, but there has to be higher tax revenues.
"A country that chronically under-finances healthcare, education - speaking of the type of state - that does not allocate... we also see what happens in the state's major interventions, starting from fires, accidents, the fight against drugs. We do not have enough staff in the fight against drug-taking. Equipment is not enough in government interventions. We are not prepared to respond to the current challenges, let alone future challenges. It may be necessary to spend more on defence. Where to introduce so many necessary expenses when the revenues are around 27%?"
Daianu went on to say that if Romania does not get additional tax revenues it we will stay saddled with a 5% deficit, and no correction can be made without pain.