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Fiscal Council: Amendments to government order 20/2016 may increase deficit by 0.25% of GDP in 2017
The Fiscal Council considers that amendments adopted by Parliament to the law on salaries of personnel paid from public funds in 2016 might increase budget deficit by at least 0.25% of GDP - 2 billion lei in 2017, in the absence of compensation measures like incomes or expenses.
According to a document issued by Agerpres on Thursday, the Fiscal Council validates impact calculations received from the Ministry of Public Finances which show that amendments approved could attract an increase of personnel expenses in 2017 by 4.85 billion lei and an effect of 2.9 billion lei on budget deficit, after considering additional incomes which salary increase may determine on the level of social contributions due by employers and employees as well as at the level of income taxes.
“Second round effects on budget incomes may appear from the lack of compensatory measures only to the extent in which 2017 deficit is left to grow by 2.9 billion lei or 0.35% of GDP. Even if we accept the existence of a high fiscal increase of 0.8 for personnel expenses, incomes generated by an additional economic increase of 0.2-0.3% would be less than a billion lei, which involves an increase of budget deficit by at least 2 billion lei (025% of GDP)”, specialists explain.
According to them, following the implementation of amendments, personnel expenses could reach at least 7.8% of GDP in 2017 and will exceed the level established by law 338/2015 that approved levels for indicators specified in the fiscal budget frame for 2016 of 7.4% of GDP.
“From the perspective of personnel expenses for 2017, defined by law 338/2015 at 7.4% of GDP, it would be impossible to include them in that level, because of present number of employees in the public sector and proposed salary increases, we estimate that the level of expenses would represent at least 7.8% of GDP in 2017,”the Fiscal Council says.
According to the source, amendments adopted could lead to the increase of budget deficit, in the absence of compensation measures like incomes or expenses of at least 0.25% of GDP in 2017.
“Budget execution in 2016 shows that there may be a lower deficit according to national methodology especially as a result of a sub execution of investment expenses for projects financed from European funds for 2014-2020. However, the fiscal space is temporary and its existence cannot be extended to 2017. The implementation of investment projects with European financing will possibly accelerate in the years to come. A temporary fiscal space in 2016 cannot be a source covering the permanent impact generated by salary increases.”
The Fiscal Council draws attention on the fact that the Convergence Program 2016-2019 and the latest fiscal-budget strategy estimates deficits of 2.9% of GDP for 2017, in the vicinity of the threshold where excessive deficit may step in, when the Fiscal Code adopted in 2015 provided for 2017 additional reductions of indirect taxes. The latest EC projection indicates a deficit increase of the European Account System from 2.8% in 2016 to 3.2% in 2017 without including the impact of amendments generated by salary increases or other tax reductions recently adopted by Parliament.
“Therefore there is high risk that the reference level of 3% of GDP for budget deficit could be exceeded. Proposed amendments, when compensation measures are missing, considerably increase this risk, in a more complicated and volatile international complex than last year,” economists warn.
The Council also points out that the introduction of more amendments which foresee salary increases than government decision 20/2016 is not according to provisions of article 17, paragraph 1 of the law of fiscal-budget responsibility 69/2010 which forbids the promotion of laws at least 180 days before the expiration of a government mandate, which lead to the increase of personnel expenses or pensions in the budget sector.
“Mention should be made that salary increases introduced by government decision 20/2016 were initiated before the 180 day deadline, although they were not according to the level of personnel expenses stipulated by law 338/2015 and provisions of article 17, paragraph 2 of the law on fiscal budget responsibility 69/2010 which forbids the increase of personnel expenses at the same time with budget rectifications. In both cases the government used exemptions from law provisions without affecting the deficit target,” the Fiscal Council says.