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Negative opinion and analysis of Fiscal Council on tax changes. “Tax package” costs 5.2 billion, not planned at all

de Victor Bratu , 6.11.2017

Ionut Dumitru, President of the Fiscal Council

The Fiscal Council issued a negative opinion on the proposal to amend the Fiscal Code, according to the opinion published Friday on the institution’s website.

The motivation of the rejection: “In the absence of a complete budget construction, the Council could not certify that the annual and mid-term budgetary targets to which a commitment has been taken with the 2017-2019 Fiscal-Budget Strategy will not be exceeded, given that the latter are anyway incompatible with the internal tax regulations and the European treaties.”

A Council’s conclusion: Changes cause a tax loss of RON 5.2 billion

According to the Fiscal Council, “analysed separately, the impact of the tax changes package implies a loss of about RON 5.2 billion, while an assessment of compensation measures identified in the explanatory memoranda does not indicate how it would be entirely offset.”

However, such an approach is inappropriate, the Council considers: “the impact identified depends on the assumptions regarding the increase in the gross salaries which have their source including in the massive increase of wages for public sector employees under the unitary pay law, with major consequences on the size of budget expenditure.”

The Law on fiscal-budget responsibility conditions the positive opinion of the Fiscal Council by the fact that the impact of the proposed measures has been considered for the forecast and does not affect the annual and mid-term budgetary targets.

Considering the above, the Fiscal Council cannot certify, in the absence of a complete budget construction, the compliance with the budgetary targets committed to by the Fiscal and Budget Strategy and that the 2018 general consolidated budget deficit of 3% of GDP will not be exceeded (the actual budget deficit should decline significantly in the coming years to meet Romania’s commitments at the European level, especially those related to the Fiscal Compact).

Moreover, the Fiscal Council reiterates its objections to the approach that persistently positioning within the immediate proximity to the 3% reference level would be a benign phenomenon – not only that such positioning is flagrantly contradictory to the tax regulations established in the national law and the European law (the preventive arm of the Stability and Growth Pact, the Fiscal Compact), but such a behaviour weakens the public finances’ position, depriving it of the fiscal space in the event of adverse shocks.

In this respect, the Fiscal Council considers that the proposal to amend the Tax Code is likely to contribute to widening the budget deficit and the structural deficit.

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