To the last drop: Government is also collecting dividends from what state companies earned in previous years

The Government has found a new source to finance the budget deficit, wages and maybe public investment.

The profit obtained by the state companies and autonomous companies, not distributed in the previous years, will be assigned to „other reserves and represents own funding source and may be redistributed in a later phase as dividends or payments to the state budget or the local budget in the case of autonomous companies„, according to a draft emergency ordinance from the agenda of the government meeting scheduled on Thursday and published by the Ministry of Finance.

„It has been found that some state companies/autonomous companies do not use the reserves which represent their own source of financing and the value surplus is found in their cash balance”, according to the justification for this measure from the explanatory memorandum for amending another ordinance, namely 64/2001.

The Ministry of Finance also justifies the initiative by the need for the state companies to have the same regime as the private companies.

In fact, beyond the „harmonization of the regulations, the new draft falls under the same tendency of the Government to collect money for the budget from dividends, easier and faster than by increasing tax collection.

That will increase the possibilities for the budget to be funded by dividends.

The Government decided in January to allow the state companies to allocate at least 90% of the net profit obtained in 2016 as dividends/payments to the state budget. The Government took the decision by a memorandum, which cannot be violated, though.

„The distribution of dividends from the companies’ reserves formed by profits from previous years, as well as by the retained earnings from revaluation is a solution used by the private companies. In this context, it is necessary to harmonize the legislation on the distribution of profits obtained by the fully/majority state owned companies/autonomous companies with the legislation governing the distribution applied to private companies„.

They also say that „the proposed amendments establish the legal framework for the redistribution, as additional dividends or, in case of the autonomous companies, as payments to the state or local budget, of the profit allocated to other reserves in the previous years, as own funding source that has not been used in accordance with the intended use, as well as for assigning the amounts that exist in the balance of retained earnings and remained unassigned.”

The profits carried forward from the previous years are available to the state and autonomous companies: „state companies/autonomous companies may use cash related to the retained earnings from previous years, representing the gain actually realised from the revaluation of tangible assets or cash related to the retained earnings from operations, other than those related to the revaluation of tangible assets (e.g. the retained earnings from accounting policy changes, retained earnings from the correction of accounting errors) „.

The Ministry of Finance also claims that „for these reserves remained available to state companies/autonomous companies, there is no specific regulation whereby they can be redistributed to shareholders as dividends or net payment.