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Cronicile

Increasingly weaker state with bigger and bigger obligations: temporary budget micro-surplus, briefly explained

de Marin Pana , 2.4.2017

The general consolidated budget ended the first two months of 2017 with a 0.05% micro-surplus of the estimated GDP for the current year, according to the data released by the Ministry of Finance. Compared to the same period of the last year, budget revenues declined by almost EUR 500 million and the expenses decreased by about EUR 100 million.

If considering the most important components of the budget revenues, we can see, in a summary, the effect of the economic policies presented during the election campaign and subsequently implemented, where the mix designed to stimulate the economic growth, of cutting VAT while increasing the revenues, has already produced the following result:


*

  • Two months 2017       two months 2016        Change
  • Total revenues (million lei)
  • VAT
  • Social security contribution
  • Partial amount

*

Of course, we might wonder what use is the economic growth from the society’s perspective, if it brings less money to the budget, money that would be very necessary for providing certain social services and for the investments that would transfer in a durable and sustainable way the production costs from compensating the infrastructure shortcomings to offsetting the wage gap to the West.

Increasingly weaker state with bigger and bigger obligations

To figure out the organization of the surpluses and deficits in the general consolidated budget, we have made a suggestive zero-sum selection in the implementation of its main components. Pay great attention, though, to the budget revenue share of total public finances, which declined to less than 40%, while the expenditure exceeds 50%.


*

  • Budget results for the first two months of 2017 (million lei)
  • Budget             Revenue (mln. lei)       Expenditure (mln lei)   Surplus/Deficit (mln lei) (% of GDP)
  • Consolidated general budget
  • – state budget
  • – local budgets
  • – budgets of fully or partially self-financing public institutions (credit repayment)

*

More simply put, we are dealing with an increasingly weaker state in terms of financial strength, which assumes (based on deficits that are unsustainable over time) greater and greater obligations. Although the data clearly indicate that it cannot afford them, even under a strong economic growth (what on earth are we to do when we inevitably plunge into a recession?).

Two thirds of the already huge state budget deficit went in the first sixth of the current year to support the social security budget, which cannot be self-sustainable with the money collected for this purpose, but needs to be balanced by law. Here, we could also come up with an interpretation of the law that the balance should be made TRANSPARENTLY, through the contribution level and not in an OPAQUE way, by subsidies from the money that the state budget does not actually have.

*

  • Budgets           specific contributions  expenditure     coverage
  • – social security budget
  • – national health insurance fund
  • – unemployment insurance budget
  • Source: Ministry of Finance

*

The situation repeats itself on a smaller scale for the national health insurance fund. It has not to be balanced by law and then it is ok to appear as a whole with a stupefying surplus of almost 300 million lei although the deficiencies from the healthcare system (the lack of vital medicines or the lack of vaccines that exposes an entire generation at the risk to catch serious diseases) are obvious.

If we add the bizarre surplus of the unemployment insurance budget (families of unemployed have the highest risk of poverty and social exclusion), where the level of cost coverage by collected revenues reached 215% (!), we exceed only with these surpluses from healthcare and unemployment insurance the entire social-democrat budget surplus, which should be a contradiction in terms.

Salaries and pensions instead of investment

A selection of the expenditures from the first two months of the year also shows the effects of the wage increase philosophy (the already applied one, not the one to follow!) in the same time with the increases of pensions and some social benefits (of course, those already applied, not those to follow!!). In short, they have suspended some investments for the future to send money in today’s consumption.

*

  • Evolution of budget expenditure in the first two months of 2017
  • Period             two months of 2016  (bn lei) two months of 2017  (bn lei) Change (bn lei/ %)
  • Total expenditure
  • Of which:
  • – staff related expenditure
  • – social assistance
  • – goods and services
  • – capital expenditure
  • – projects financed from external grants
  • Source: Ministry of Finance

*

Interestingly, the state employees and social assistance recipients split the gain obtained following the elections fifty-fifty (1.24 billion lei for each category) in nominal terms, but the first marked an increase by over 40% higher, as they are placed closer to the power. The reverse of this irresponsible race of increases will come in mid-year, when pensions will increase further (we shall see how) by an additional 9%.

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