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Expenditure from 2017 budget: Sudden turn towards underdevelopment

de Marin Pana 13.2.2017

 

The expenditure from the 2017 state budget has been planned with an increase almost three times higher than the economic growth foreseen in the draft budget (certain 14.9% by law, against an economic growth forecast, debatable, of 5.2%), which could not bode well for the chances to implement the provisions of the state budget.

Some milestones to be considered

It remains quite unclear how the payment of salaries could be covered from the state budget by the end of 2017, since the amounts allocated are only 0.8% higher than in the previous year and wages have already been increased during 2016 and early 2017 for some broad categories of personnel, let alone the 16% increase in the minimum wage.

It is noteworthy that the amounts allocated for the payment of interest on public debt are only 0.7% higher than in the previous year, while the quotations on the capital markets seem to be growing and the less good image of the country translates into an increase in yields of government securities (difficulties in contracting new loans at relatively low-interest rates to roll over the debt are already obvious).

*

  • 2017 budget – expenditure
  • Expenditure
  • Total
  • Current expenditure
  • Personnel
  • Goods and services
  • Interest
  • Subsidies
  • Transfers between public administration entities
  • Other transfers
  • Social assistance
  • Expenditure funded from external grants
  • Expenditure funded from external reimbursable funds
  • Capital expenditure

*

It is surprising the decrease of nearly 7% of the amounts allocated for transfers to other public administration entities, in other words, the money mainly given to support the social security (pensions) and health insurance budgets, unable to cover the financing needed from the specific contributions to these budgets.

Presented in more detail in the budget, the decrease of the funds for the state social insurance budget is -9.7% (14.08 billion lei compared to 15.60 billion lei last year) and the decrease of health insurance funds reached -43 3% (from 1.20 billion lei to only 0.68 billion lei), plus a devastating -85% (!) in the healthcare programs.

We should also pay attention to the provision on the transfers from the state budget to local budgets for financing the medical equipment and communication equipment for health emergencies, which follows a negative trend from 109.5 million lei in 2015, to 74.5 million lei in 2016 and only 7.8 million (90%!) in 2017.

The 5.6% higher allocation to the social security, although with a strong point in being closer to the estimated economic growth, does not keep the pace with the overall expenditure growth. A surprising fact, given the political orientation and the perception created when the economic program has been presented.

Incidentally, although it appears to have drastically tightened the belt in these areas, the budget provides for an increase of 123.1% over the previous year, from 0.80 billion lei to 1.78 billion, in the transfers aimed to cover the contributions of pensioners, recently exempted from payment.

What is significant is that the transfers for financing the investment project of the subway, after they halved in 2016, are now completely lacking and the national program for local development, which reached some momentum last year, will now “benefit” from a discount of -46.4% and reach from 4.23 billion lei to 2.27 billion lei.

Important to keep in mind, as a conclusion

It is noteworthy, as a conclusion: on the revenue side, any slippage in inflation (higher amounts collected from taxes) and/or in the exchange rate (via the money coming from the EU) might prove helpful in achieving the revenue target; on the expenditure side, the risk is asymmetrical and the only possibility related to the budget is to exceed the planned levels. However, the room for maneuver is almost non-existent and we are at risk in the event of unforeseen changes in the international economic environment.

Basically, we are dealing with impairing the development and the perspective of increasing the future revenue, to force providing populist benefits, unsustainable in the long term.

That means a kind of inverted socialism, as a capitalism in a democracy of some narrow interests.

It is a mix of a leftist vision of social benefits, exchanged for votes, and the rightist vision of stimulating the businesses by under taxation, in the absence of other ideas for improving the business environment.

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