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Official excuse launched for cutting investment: Dragnea criticizes Ciolos for 10 billion lei, precisely the impact of the Government measures decided on Friday

de Victor Bratu , 11.1.2017

liviu-dragneaPSD Chairman Liviu Dragnea announced on Sunday evening at Romania TV that “it is very likely” to initiate an inquiry parliamentary commission before which former members of Ciolos government to be called to give explanations about the fact that 2016 budget revenues are “10 or 14 billion lei lower “, therefore there is less money for the 2017budget.

The amount of 10 billion which Dragnea mentioned represents precisely the impact of the measures that Grindeanu government decided on Friday, measures that do not have a budget coverage. And the money for these government measures will be taken from the investment.

Sources from the Ministry of Finance told cursdeguvernare.ro that these new social measures, along with similar others, would cause an additional deficit of 1% of GDP, which would add up to the 2.99% of GDP from the 2017 draft budget prepared by former Minister of Finance. The draft budget left from government Ciolos does not include though the measures that have no budget coverage taken by Dragnea government: it is the essence of President Iohannis’ dilemma, who expressed his curiosity at the investiture of the new government about how such a set of measures could meet the maximum deficit of 3%.

In these circumstances, PSD paves the way towards postponing investments or introducing new taxes while invoking “the hard legacy” that would prevent them to fulfil the promises made during the elections.

The technical explanation for the “missing 10 billion” is valid for all governments from Ceausescu on; December – the last month of expenditure – is marked, usually and in a damaging manner – by bills postponed to the last minute by local authorities. Authorities that appear, now, in their clear majority as being under the PSD’s political control, both at the level of county councils and municipalities. An analysis by cursdeguvernare.ro on this phenomenon can be read here: link.

Liviu Dragnea’s accusations

We are talking about at least five people who must give explanations: Prime Minister, Minister of Finance, Minister of European Funds, head of ANAF and Chairman of the Fiscal Council (…) It is very likely for us to initiate tomorrow an inquiry commission because what happened at the Ministry of Finance is illegal. They made estimations on paper, probably based on some written commitments from some decision makers, saying that revenues will increase in Romania by almost three billion at the end of 2016. Consequently, they made a positive budget amendment. That happened around 23 November. 31 December shows us that revenues are lower by 10 or 14 billion; I shall receive all the data tomorrow morning. Forgive me, but that is completely illegal,” said Liviu Dragnea on Romania TV.

PSD leader said that because of that budget amendment from November 2016, the 2017 budget will have 10 billion lei less. “They who lied about these data, which has never happened in Romania before, should pay. Let’s see how mister Chairman of the Fiscal Council gave a favourable opinion, actually attested that these data are real. We are in the situation that Romania’s 2017 budget has a ten billion lei hole which we shall cover for sure, but these ten billion lei could have gone to other good things for Romanians (…) If things come true, we shall be in an unprecedented situation in Romania,” said Liviu Dragnea.

The reality behind statements. Anca Dragu: if we left a hole of 10 billion, deficit would not be 2.59, but 4.1%

Sources from the Ministry of Finance said on Monday to cursdeguvernare.ro that the big challenge for the new Minister Viorel Stefan is to ensure the revenue needed to keep the social measures decided in the Friday’s meeting by Grindeanu government while maintaining the budget below the deficit threshold imposed by the EU.

At this moment, while keeping the parameters outlined by former Minister Anca Dragu, the deficit would go up to at least 4% of GDP.

Liviu Dragnea’s statements are sourced in this reality, as PSD and ALDE are trying to “politically” solve an economic matter that is delicate, if not impossible.

Related to the allegations about not meeting the budget revenues program, the reality is the following:

  • Liviu Dragnea’s assertion that 10 or 14 billion lei are missing stands is marked by a total doubt: If that would have happened in reality, the budget deficit would be higher than 2.60% of GDP, the level recorded by the budget implementation at the end of 2016.
  • Budget estimates of revenue are constantly over-valuated in terms of the EU funds absorption. This is a constant of all the governments since 2008, including former PSD governments. It should be noted that failing to meet this target also diminishes state expenditures by the amounts corresponding to the co-financing.
  • Wrong estimation of the EU funds absorption is noticed by the Fiscal Council each time the budget is drafted.
  • 2016 budget revenues were impacted by the VAT decrease and the tax measures adopted in 2015 by former Ponta government.
  • Increasing the government expenditure around the year end is also customary to all governments, not because of the Ministry of Finance, but local authorities. It is about how they manage the budget implementation and the year-end comes with the settlement of the invoices issued by various suppliers.

Dacian Ciolos: A gimmick

Former Prime Minister Dacian Ciolos answered on Facebook the allegations launched by Liviu Dragnea which he describes as a political gimmick.

As he is probably facing some figures and realities of the Romanian economy about which I keep telling since months, aware that he does not know how to find the way out to solve the issue of covering the financial promises made during the elections, Mr Liviu Dragnea does a trick and announces that he would have found, and I quote, a ten billion hole in the budget.

For any person having a minimum economic knowledge, such a “hole” would entail either lower revenues or higher expenses than forecasted and, it would have anyway been indicated in the budget deficit – which is not the case. This “hole” does NOT exist.

The reality is that the 2016 revenues were higher than in 2015 and the final deficit was below the level forecasted and voted by the Parliament with the budget for last year. Moreover, we fully reimbursed VAT to companies worth 2.1 billion lei in December, without putting any pressure on next year’s budget, as it is usual, just to ease the burden for the new government. Everything else is a fairy tale.

Incidentally, there is another budget for 2017. If he cannot fulfil this year the promises made during the elections, Mr Liviu Dragnea cannot put the blame on the last year’s budget. But Mr Dragnea is not concerned with the details, is he?

Otherwise, this is the same PSD manner also used all during our government: technocrats are to blame. PSD covers their failures and deceitful promises by propaganda and diversions.

The country’s budget is not a bottomless pit, neither can it be administered like an outlaw, Mr Liviu Dragnea. Your populist promises will burden those we do honest work and pay taxes, you will indebt our country and future. By the way, why you did not announce during the elections that you will raise taxes for some employees and you only did so in the second government meeting?“, writes Dacian Ciolos.

Future source of money was announced by Deputy Prime Minister Daniel Constantin: “differentiated” income taxation is to follow

daniel-constantin-150x150PSD-ALDE coalition went into the adoption of social measures without an economic foundation and now finds itself forced to look for solutions that would allow them to ensure these measures. Deputy Prime Minister Daniel Constantin already said on Sunday at Digi 24 that the new government is thinking to introduce the differentiated income tax.

There is a discussion to come up, as of 2018, with the tax based on the level of citizens’ income. It is a discussion that we shall have at that moment. The flat tax will be maintained, but there are other forms for other types of income, to be taken into account,” explained the Deputy Prime Minister for Digi 24.

During his statements made on Sunday, Daniel Constantin, Deputy Prime Minister within Grindeanu government, did not mention the money missing from the budget. Contrary to Liviu Dragnea, Daniel Constantin explained that there is little difference between the budget prepared by the ruling coalition and the one that Dacian Ciolos cabinet left.

It is still work in progress, as we had a draft budget prepared when we were in opposition, without having all the data. I believe that certain fine tunings are made now and we shall be able to adopt it at the end of the month (January – editor’s note),” said the Deputy Prime Minister.

Anca Dragu: Budget is an annual construction started from scratch. If the 10 billion missed, we would have a deficit exceeding 4%

anca-dragu-1The budget deficit is 2.59% of GDP compared to 2.8% of GDP, the target from which we started the year. It means that we do not have a hole of 10 billion lei. If the hole had existed, it would have translated into an additional deficit of about 1.3% of GDP and we would have closed the year with 4.1% of GDP. Also, let us not forget that Romania’s budget is checked and monitored by the European Commission. Especially Romania’s budget, as we are a country under a period of post-program monitoring until about 2018,” former Minister of Finance Anca Dragu told HotNews.ro.

The budget is not a box with money which the Minister keeps in a corner of her office and maybe takes with her, also explains the former financial expert.

What our budget implementation really indicates is an underperformance in terms of expenditure, which is revenue related. It actually indicates a similar decrease in revenues and expenditure compared to the forecast. For instance, we have unrealised expenditure related to the Health Insurance House. You know that we have this cost-volume-outcome formula for medicines. When the state pays, the pharma company also pays the clawback tax. If the state does not make the payment for the medicines, neither the clawback tax is charged. But I cannot cut these amounts from the budget since the House can make the settlement in the last day. We also have the projects with non-reimbursable financing. These forecasted amounts remain in the budget until the end of the year and I cannot cut them from the budget because that would mean to also cut the co-financing“, says Anca Dragu.

The budget means a forecast of revenues and expenditures and their implementation. At the end, you draw the line and see if you have a deficit or a surplus. If you have a deficit, public debt increases, and if you have a surplus, public debt decreases. In the following year, you start all over again. The budget It is an annual project. When the fiscal year ends, the budget reaches zero and starts from zero next year,” said Anca Dragu.

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