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Lazea (BNR): Economic growth and attracting European funds, two false friends for deficit reduction

Very big economic growth and attracting European funds represents two false friends which are a lot mentioned in the Romanian press and even by some specialists, who say the deficit can easily be reduced through not painful measures, said Valentin Lazea , the chief economist of the National Bank of Romania.


Economic growth does not guarantee deficit reduction because it will not lead to budget consolidation. Or, in case budget incomes grow less than 10%, that is lower than economic growth, there will not be budget consolidation. Economic growth does not guarantee deficit reduction if expenses do not grow less than economic growth and if incomes do not grow faster than economic growth, Lazea explained. Referring to European funds, Lazea said budget deficit would drop only if European money is received and not spent, “which is an absurd situation.”


What is European money doing? It replaces investments which we can no longer make with domestic funds, because about 90% of budget expenses are for salaries and pensions and social expenses. Therefore, we are in the situation in which we no longer have resources for investments and that is why we are structurally dependent on European funds for investments,” Lazea added.


He also referred to reducing expenses and increasing incomes. In his opinion, unemployment due to the pandemic, will grow very much in the private sector.

Will the state afford firing budget employees and add jobless people from the state sector to the already growing unemployment in the private sector? It is a big question,” Lazea pointed out.


He comes with a solution – the four day working week for state employees, with the drop by a fifth of their salaries. “There could be a solution to have a four day working week with a reduction by a fifth of the salary. There could be a sort of balance between budget salaries and salaries in the private environment,” Lazea pointed out. 

At the same time, he said “there are many  fiscal escapes, exemptions, facilities found for not paying taxes for so many categories that almost nothing remained for the single share”.

Lazea continued saying that “a certain increase of tax rates,”will be needed, when the tax on property in Romania is one of the lowest in Europe.


He pointed out that the entire fiscal system is encouraging people to take money out of enterprises and use it for real estate.” Lazea came with three examples in this respect. “I will give you three examples: no.1 – tax on dividends is only 5%, lower than for the other forms of capital gains, invites you to take money out of the firm and instead of investing it in the company and in productive activities, to take it home. No. 2: since properties are weakly taxed, it is a kind of invitation not to take the money to the stock exchange or pension funds, or insurance or even productive investments, but it is easier to invest it in real estate . If you want to make real estate transactions because once you do it you get fiscal aid,”said Lazea at an online conference “National budgets during pandemic.”