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Presidential Councillor: Sacrificing public investments involves middle and long term risks


The practice of inclusion within deficit targets by sacrificing public investments involves middle and long term risks, according to an analysis made by presidential councillor Cosmin Marinescu and presented on his personal blog.

The present fiscal-budget tendencies affect the sustainability of public finance, especially in the situation of continuing procyclical policies and increasing expenses with permanent character, he said.

Procyclical fiscal policies that started in 2015 attracted the significant deviation of budget deficit, in a general fiscal consolidation context in EU, public debt is maintained within sustainable parameters, but persistent budget deficits will amplify its burden, especially if external conditions are getting worse, the councillor said. Including the deficit within the 3% target includes some risks: in case income estimates prove unrealistic, such as split VAT (0.5% of GDP), observing the deficit target will attract new on the spot measures and/or compressing public investments.

The additional economic growth obtained in 2017 did not show in fiscal income increase, a fact which also shows low performances in fiscal collection and administration.

Labour force occupation continues to grow, unemployment rate reaches a historic low, but labour market is tensioned on the background of trained human resource deficit. On the background of the consistent import advance, commercial deficit has intensified, which contributed to deepening deficit in the payment balance. In the context of a high degree of financial volatility, reflected in exchange rate and interest rate dynamics, intensifying inflation pressures indicate the need of trajectory adjustments at economic policy level.

This is the context in which we feel the need for a reorientation of consumer economic policies towards investments. It is essential to improve the quality of public investments by attracting European funds, especially in the field of transport infrastructure. At the same time, in order to sustain private and business initiative it is vital to ensure economic predictability and sustainability perspective, strongly affected of late by insufficiently strong fiscal initiatives at the level of economic opportunity and impact. Consolidating economic performances needs clear priorities for structural policies, including financial discipline in economy and improving corporate governing in the state company sector.