Romania Insider
RO central bank chief economist sees no alternative to deferring planned pension hike

The budget revenues can increase by 1.2%-1.3% of GDP as a result of feasible corrective actions the new Government of PM Ludovic Orban could implement immediately - which might be enough to offset the effects of the pension hike already operated in September 2019 but is far from enough for covering the massive 40% hike scheduled for September 2020, according to Valentin Lazea, chief economist of Romania’s National Bank (BNR), quoted by Agerpres.

Including the correlation of the pensions - a move aimed at leveling the pensions of those retired under different legislation that often resulted in different pensions for the same contributions, the hikes provisioned under the Pension Law will result in a public budget deficit of 6.5% of GDP in 2022, according to Lazea’s estimates.

Cutting down the promised 40% hike scheduled next September to “several percentage points” would keep the deficit marginally above 3% of GDP, he commented.

The corrective measures envisaged by Lazea are: making redundant 5% of the personnel in the budgetary sector (expected to result in a payroll smaller by 0.6% of GDP), better VAT collection (+RON 5 billion, just over EUR 1 billion or 0.5% of GDP), and doubling the dividend tax from 5% to 10% (+RON 1 billion, 0.1% of GDP).

Separately, the head of the Fiscal Council, Daniel Daianu, has calculated that the budget deficit will reach 8% of GDP in 2022, unless the pension hike is deferred. The social security expenditures account to 10.65% of GDP this year. “[As a result of the pension hikes] the social assistance expenditures increase compared to the baseline scenario with 0.7 pp of GDP in 2020, with 2.7 pp of GDP in 2021 and 3.7 pp of GDP in 2022," Daianu stated, according to Ziarul Financiar.

Both projections take into account unchanged conditions, namely a robust economic growth. A recession would make things even more complicated.

(Photo: Adobe Stock)

[email protected]

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Romania Insider
RO central bank chief economist sees no alternative to deferring planned pension hike

The budget revenues can increase by 1.2%-1.3% of GDP as a result of feasible corrective actions the new Government of PM Ludovic Orban could implement immediately - which might be enough to offset the effects of the pension hike already operated in September 2019 but is far from enough for covering the massive 40% hike scheduled for September 2020, according to Valentin Lazea, chief economist of Romania’s National Bank (BNR), quoted by Agerpres.

Including the correlation of the pensions - a move aimed at leveling the pensions of those retired under different legislation that often resulted in different pensions for the same contributions, the hikes provisioned under the Pension Law will result in a public budget deficit of 6.5% of GDP in 2022, according to Lazea’s estimates.

Cutting down the promised 40% hike scheduled next September to “several percentage points” would keep the deficit marginally above 3% of GDP, he commented.

The corrective measures envisaged by Lazea are: making redundant 5% of the personnel in the budgetary sector (expected to result in a payroll smaller by 0.6% of GDP), better VAT collection (+RON 5 billion, just over EUR 1 billion or 0.5% of GDP), and doubling the dividend tax from 5% to 10% (+RON 1 billion, 0.1% of GDP).

Separately, the head of the Fiscal Council, Daniel Daianu, has calculated that the budget deficit will reach 8% of GDP in 2022, unless the pension hike is deferred. The social security expenditures account to 10.65% of GDP this year. “[As a result of the pension hikes] the social assistance expenditures increase compared to the baseline scenario with 0.7 pp of GDP in 2020, with 2.7 pp of GDP in 2021 and 3.7 pp of GDP in 2022," Daianu stated, according to Ziarul Financiar.

Both projections take into account unchanged conditions, namely a robust economic growth. A recession would make things even more complicated.

(Photo: Adobe Stock)

[email protected]

Normal

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