Romania's Govt. plans fiscal consolidation by cutting expenditures and investments

Romania’s Liberal Government plans to cut the budget deficit from over 4.4% of GDP this year to 1.8% of GDP in 2023 mainly by cutting expenditures - two thirds of the deficit cut - while increasing the revenues would contribute by only one third.

At the end of the four-year fiscal consolidation period, the budget revenues to GDP ratio will have risen by only 0.87 percentage points (pp) to 32.25%, a performance that is less than mediocre compared to other European Union countries, including Bulgaria.

Romania has the largest VAT gap (uncollected VAT, or VAT evasion) among all EU countries, a modest absorption rate for the structural and cohesion funds, and some of the lowest corporate and property tax rates in Europe.

Meanwhile, the public expenditure to GDP ratio is planned to decrease by 1.81 pp to 34% in 2023, despite massive public pension hikes and amid uncertain structural reforms in the public sector, which will likely result in constant pressures on the fiscal space left for investments. And indeed, the public investments to GDP ratio is projected to further decline from 4.27% in 2019 (after the Social Democrats cut as much as possible from the investments to pay wages and pensions) to 4.09% in 2023, in a country lacking a decent education, medical system, and infrastructure.

(Photo source: Gov.ro)