Romania’s Government on December 11 passed a bill that sets the key indicators of the 2020 public budget planning, including a 3.6%-of-GDP cash deficit (3.58% under European Union’s ESA methodology), Mediafax reported.

The budget planning will assume medium term economic growth of 4% per annum, slightly on the optimistic side compared to consensus forecast, and outlines the higher tobacco excise duty as well as the ban on hiring retired people in the public system among the measures that would help with the sizeable fiscal consolidation from a 4.4%-of-GDP public gap this year to only 3.6% deficit in 2020.

The bill published by the Finance Ministry indicates certain reduction in the public payroll, to 9.7% of GDP in 2020 from above 10% in 2019 (the figure hit 7.4% in the first three quarters of the year). The public payroll is projected to drop to 9.4% of GDP in 2021.

It remains unclear how the Government will accommodate the supplementary expenditures generated by the 14% pension hike this September and the planned 40% hike envisaged for September 2020, particularly as the lawmakers have furthermore cut the extra excise on car fuel sales (starting January 2020).

Furthermore, the Government announced plans to eliminate the tax on financial assets and other taxes provisioned under the emergency ordinance (OUG) 114/2018.

The ruling Liberal party is considering an accelerated procedure for passing the 2020 budget through the Parliament (assuming responsibility) to avoid amendments especially from the Social Democratic Party (PSD), which would make its fiscal consolidation efforts even more difficult.

(Photo: Shutterstock)

editor@romania-insider.com