At the end of the first half of the year, the general consolidated budget registered a deficit of about RON 15 billion, an amount… Mai mult›
Between three and five million Romanians work and live abroad. The 2017 UN estimate, rated as optimistic by the World Bank’s Report on Diagnosis of… Mai mult›
In only one quarter: Incomes increased five times faster than GDP. For public sector employees, even faster
Data released by the INS for the first quarter of 2018 show that households’ living standards increased considerably compared to the same quarter of the… Mai mult›
It is the Administrative Code’s turn: little responsibility for local elected officials, higher power for asset disposing, privileges
The Chamber of Deputies votes the amendments to Romania’s Administrative Code on Monday, amendments that strengthen the political control over local administrations. It is expected… Mai mult›
The average gross wage announced by the INS for May 2018 was 4,512 lei, 0.4% lower than in the previous month. Net nominal average wage… Mai mult›
Fiscal Council – Analysis in a regional context: How pro-cyclical tax policies compromise long-term economic growth
de Adrian N Ionescu , 23.4.2018
One of the most striking arguments is the very large amplitude of GDP deviations from the potential, resulting from a pro-cyclical policy which reduces taxation, although it would not be needed as the economic growth is already high, according to a study by economist Ionut Dumitru.
The “output gap” indicator (GDP deviation from the potential) is the furthest from the potential in Romania, unlike Poland, Hungary and the Eurozone.
In 2008, which preceded the crisis, the GDP growth deviation from the real potential of the economy was more than double in Romania compared to Hungary and about six times higher than in Poland.
“The amplitude of the economic cycle is very high in Romania,” and “the discretionary fiscal policy exacerbates the fluctuations of the economic cycle,” says Ionut Dumitru.
- Very high amplitude of the economic cycle in Romania
- Output gap indicator (GDP deviation from the potential)
Basically, the Government repeats the pro-cyclical policy errors of that year (reduction of taxation when the economy was growing anyway even without this incentive), with the political support of a parliamentary majority that refuses the dialogue based on arguments.
Because of the pro-cyclical tax policy during (still) the ascending phase of the economic cycle:
- “The discretionary fiscal inventive is maintained although it should have been withdrawn.
- the available fiscal space is utilized unnecessarily and macroeconomic imbalances occur.
- It accentuates the economic boom phase,” says Ionut Dumitru’s study.
In the downward phase, it will be seen that:
- “There were not enough” buffers “created in good times and the fiscal space has been exhausted at that time.
- the implementation of pro-cyclical policies during the ascendant phase does not leave the option of a counter-cyclical policy in the downward phase.
- (pro-cyclical policy) accentuates recession.”
- Discretionary fiscal policy exacerbates fluctuations of the economic cycle
- Primary fiscal impulse (the increase of the structural primary deficit, share of GDP, the axis on the right side)
- Output gap (% of potential GDP)
In Romania, a “quasi-permanent pro-cyclical fiscal policy” has been adopted over the last 20 years, according to the study mentioned, “Aspects regarding the fiscal-budgetary policy – economic growth relationship”.
- Quasi-permanent pro-cyclical fiscal policy
Anti-cyclical policy, negative output gap, positive fiscal primary impulse Pro-cyclical policy, positive output gap, positive fiscal primary impulse Pro-cyclical policy, negative output gap, negative fiscal primary impulse Anti-cyclical policy, positive output gap, negative fiscal primary impulse
“Anti-cyclical fiscal policy stimulates the economic growth and pro-cyclical fiscal policy inhibits long-term economic growth, especially in countries with low financial intermediation,” says Ionut Dumitru.
Revenge of real economy to come
The actual budget deficit (ESA 2010) was for two years at the maximum threshold of the EU Treaty and will continue to be 3% over the next two years, and the structural budget deficit (3% of GDP in 2016) increased to 4.3% last year and will deepen to 5.2% this year and to 5.8% next year, according to the estimates of the economist mentioned
- Tax revenues are at historically minimum levels and very low at the European level
- Tac revenue share of GDP
“A budget deficit of 3% of GDP is far too high for the economic cycle that we are in and makes us vulnerable (by exhausting the fiscal space) to a future downward phase of the economic cycle,” the study said.Besides, the structure of budget revenues has become more unfriendly over the last years to the long-term economic growth.
And the Romanian Government’s tax revenues are the lowest as a share of GDP in the European Union, except for Ireland.
Lăsați un comentariu
The Ministry of Public Finance makes a "comparative analysis" of the Tax Code and the Tax Procedure Code with a view to applying a new… Mai mult›
Romania, Hungary and Slovenia are the member states that recorded the largest increase in the share of public sector employees in the total number of… Mai mult›
Fitch confirms Romania's rating at BBB- but warns: fiscal loosening is risky for macroeconomic stability
Fitch Ratings confirmed on Friday Romania's rating for long-term foreign and local currency debt at BBB-, with a stable outlook, but warned that fiscal loosening… Mai mult›
Finance Minister Eugen Teodorovici said at a press conference held in Bistrita that "a mechanism of this type is in progress”, a mechanism on tax… Mai mult›
AOAR - Economy against new Criminal Code: businessmen denounce excessive protection provided to officials who cause damages to economy
The Businessmen’s Association of Romania (AOAR) asks the ruling coalition to explain the mechanism by which, after changes introduced on Wednesday in the Criminal Code,… Mai mult›
Number of insolvencies increased by 12% in first five months. Suspended activities - plus 31%, dissolutions - plus 59%
The increase in the number of companies and PFAs in insolvency was 11.97% in the first five months of this year, compared to the same… Mai mult›
The investment needs in Romania's transport infrastructure exceed EUR 70 billion, while the available resources by 2030 are EUR 36 billion, according to the Transport… Mai mult›
Liviu Dragnea announces a dictatorship through ordinances: "Correct procedural approach through Parliament is wrong, from the law on investment fund to laws on the judiciary. We will be firmer and more radical"
"We decided to be much firmer and more radical. My way of having a correct procedural approach in the Parliament proved wrong. In the Parliament,… Mai mult›
Deputies adopted a draft law on Wednesday whereby entitlement to social assistance ceases when a job is refused. The decision, Agerpres announced, was taken with… Mai mult›
The National Agency for Employment (ANOFM) grants subsidies of RON 900/month to employers who employ graduates of educational institutions, with contracts of indefinite duration, within… Mai mult›
C.P. Tariceanu, before the heads of Senates from EU: The European Commission has encouraged the parallel state, in Romania it is like in the 50's
Calin Popescu Tariceanu (foto) delivered a very tough speech on Friday, in the Senate, addressed to the European Commission, which he accused of encouraging the… Mai mult›
The National Bank of Romania (BNR) sent to banks for consultation a draft amending Regulation 17/2012, which provides for a consistent lowering of the indebtedness… Mai mult›
Senators adopted on Wednesday the draft for amending the Code of Criminal Procedure, by 74 votes for to 28, against. The bill goes to the… Mai mult›
RBL: Workforce crisis is worse than economic crisis - 3.4 million Romanians have left the country in last 10 years
Migration is one of the most serious problems facing Romania at this time, along with the lack of infrastructure. However, the return of Romanians to… Mai mult›