The Fiscal Council announced on Wednesday, the day when the Government adopted the draft budget amendment without the opinion from CSAT, that it considers the proposed increase in the VAT revenues included in the updated budget amendment (solely the share of the revenues related to chain compensation schemes, estimated at RON 0.6 billion, respectively RON 1.5 billion), as well as the increase in the revenues from excise duties (RON 0.9 billion) as having no basis”.
The Fiscal Council also estimates the possible revenue gap at the end of the year, at the level of VAT and excise duties, as it considers they are cumulatively overestimated by an amount ranging between RON 4 billion and RON 5 billion.
The Finance Ministry sent to the Fiscal Council the new version of the amendment on the general consolidated budget (BGC) for 2018, along with an updated version of the explanatory memoranda and the draft emergency ordinance.
The Fiscal Council’s opinion shows that, in the context of its opinion on the initial draft amendment on the general consolidated budget, the expenditure on goods and services was probably under-dimensioned by about RON 0.9 billion and social assistance expenditures by about RON 1.3 billion (in the context in which decision is maintained to pay pensions before the 15th of the month).
The updated amendment proposal increases expenditure on goods and services by RON 0.6 billion but does not address the issue of the likely insufficient size of social assistance expenditure.
In conclusion, the Fiscal Council foresees an increase in the risks to the deficit target assumed in the draft budget amendment, which shapes, in the context of maintaining the current fiscal budgetary framework, the prospect of exceeding it by about RON 6 billion (compared to the prospect of an overrun of the deficit target of about RON 4.2 billion, evaluated in the context of the first version of the draft amendment).
Proposed changes to BGC revenues and expenditures compared to the initial version
The updated version of the draft supplements the estimated total revenues of the BGC by RON 2.8 billion, of which RON 0.6 billion come from a new chain compensation scheme for arrears related to BGC with a symmetric impact on revenues and expenditures (so-called swap).
By revenue categories, they supplement VAT revenues (by RON 2.1 billion, with the revenue impact of the above-mentioned compensation scheme being included in this amount) and excise duties (by RON 0.9 billion). As a result of these changes, the above-mentioned aggregates get back to the exact same level of the initially approved budget, despite the lack of objective elements that could justify such an evolution.
A smaller increase is operated at the level of non-tax revenues (+RON 0.26 billion). Finally, revenues from the tax on the use of the goods, the certification of goods or carrying out of activities are reduced by RON 0.5 billion, in the context of the increase in the estimated refunds of vehicle tax (registered as negative revenues).
Total expenditures of BGC are supplemented by an equivalent amount (RON 2.8 billion) and by categories of expenditures, increases are in expenditures on goods and services (RON 0.6 billion), other transfers (RON 0.14 billion), the Government’s reserve fund (RON 1 billion) and capital expenditures (RON 1.06 billion, which includes the full symmetric impact on expenditures of the above-mentioned swap compensation scheme).
The budget deficit remains unchanged compared to the original version of the draft budget amendment. From the tax rules perspective, the updated coordinates of the draft budget amendment imply, compared to the initial draft, the increase in the overrun of the BGC total expenditure threshold (excluding the financial assistance from the EU and other donors) as defined by law 269/2017, by RON 2.8 billion, up to RON 10.1 billion.
In its opinion on the first version of the draft budget amendment, based on budget implementation for 6 months, the Fiscal Council appreciated that the downward revisions operated at the moment on revenues from VAT and excise duties appeared to be underestimated, as it was likely for the total revenues to be by about RON 2 billion below the estimates from the draft amendment (in this case, by RON 1-1.5 billion for VAT and RON 0.5-1 billion for excise duties).
Final implementation as at July, which has become available in the meantime, does not contain elements that could require the revision of the assessment made then.
