Romania's Fiscal Council chief on fiscal consolidation: There’s no magic

Magic does not exist! To reduce burdensome external financing, we need to reduce undue domestic subsidies, and preferential tax regimes, Daniel Daianu, head of the Romanian Fiscal Council, points out in a comment on Romania's fiscal consolidation in a global context.

"This is not simple, as changes in the tax regime inherently affect the income of some categories of people, and there is noisy opposition," he stressed, quoted by Economica.net, adding that an acceptable deficit correction implies a fairer fiscal regime and "this must be said clearly."

Currently, the ruling coalition is preparing corrective measures that promise everybody to be better off.

Daianu warns of possible deterioration in investors' confidence vis-s-vis Romania's creditworthiness unless credible corrective measures are taken. "In the coming years [...], markets will react, possibly nervously, and creditworthiness will be hit," he said, explaining that, at this moment, Romania's vulnerability is "obscured" by a general complicated context.

Therefore, Daianu recommends the Government adopts measures to reverse the dynamics of the budget deficit, which is heading towards 7% of GDP this year. If a deficit were to be significantly lower in 2023 compared to 2022 (when it was 6.2% of GDP in the European methodology, ESA), even if sensibly above 4.4% of GDP (target now unrealistic), it is to be assumed that markets will not react nervously. This is especially so if it is perceived that the deficit trend is changing through corrective measures, that the deficit will continue to decline in 2024.

"In order to correct the deficit, it is necessary to eliminate as much as possible what makes the fiscal regime in Romania regressive, unfair (those who earn more pay proportionally less), to give up facilities, loopholes for fiscal optimization (the case of PFA, the microenterprise regime, etc.), and ANAF to seek to collect better. Spending needs to be streamlined and social assistance to be as targeted as possible (not granted regardless of household income)," are the recommendations outlined by the head of the Fiscal Council.

(Photo: George Calin/ Inquam Photos)