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FinMin Valcov: Reducing taxes means freezing expenses in 2016
Tax reductions could be applied by freezing budget expenses in 2016 at the level of 2015, but as of 2017 about 40% of GDP increase will go to fiscal relaxation and 60% to budget expenses, said Darius Valcov, the finance minister.The minister showed that cost standards would be introduced by mid 2015 for the central administration and did not exclude other administrative reforms.
According to the finance minister, the income shortage estimated for 2016 from reductions of VAT and excises and the elimination of the pole tax and taxes on incomes from dividends will be covered from the positive impact of economic growth on budget incomes.In these conditions the 2016 budget will follow the expense level established in 2015. The minister estimates a drop of 16.4 billion lei for next year, of which 9.4 billion lei will be recovered, leading to an additional deficit of 7 billion lei.
The latest prognoses of the National Commission for Prognosis, indicate GDP of 748.6 billion lei in 2016, compared to 709.7 billion lei this year, corresponding to an economic growth of 3% in 2016.
Valcov declared on Thursday that the positive effect on GDP will bring economic growth to 4.3% in 2016 and mentioned that the prognoses established with international financial institutions for 2016 is 2.6%.
For 2017, when the draft Fiscal Code foresees the drop of CAS for employees from 10.5% to 7.5% and for employers from 15.8% to 13.5%, the substantiation note indicates a negative impact of 8 billion lei, while recovered incomes could be 3.75 billion lei, most of them being the result of reducing CAS (2.7 billion lei).
For the same year a GDP of 790.8 billion lei is estimated, on the rise by 42 billion lei (absolute growth) and a relative growth of 3.3%. The Finance Ministry considers that tax reductions of 2017 will lead to an additional economic growth of 0.6%.
For 2018, the ministry mentions a negative impact of 7.7 billion lei, of which 5.6 billion resulting from VAT reduction from 20% to 18%. Recovered incomes are estimated at 3.5 billion lei, of which 2.8 billion will be additional incomes from the positive effect of VAT reduction.
For the same year prognoses show a GDP of 836.1 billion lei, 45 billion lei more than in 2017, which corresponds to an economic growth of 3.5%. There will be an additional contribution of 0.7% to economic growth.
For 2019 when the draft Fiscal Code foresees the reduction of the single share by 2% from 16% to 14%, the government estimates a direct reduction of 4.8 billion lei, partially compensated by 2.5 billion lei from recovered incomes.
Romania engaged to observe a deficit of 1.83% of GDP this year, corresponding to a structural deficit of 1% of GDP, to which an adjustment of 0.15% of GDP is added to co-finance projects from EU funds.
Darius Valcov explained that budget programming had been modified so that the maximum of public expenses should be made in quarters 2 and 3, so that the mid year deficit is estimated at 1.7% of GDP. Public expenses will be lower in quarter 4, contrary to the historic trend.