FINANCIAL NOVEMBER The return to the cash ceiling of 5,000 lei

The main concern of the Government in the last month of autumn was to correct the errors crept into law 296/2023 through which fiscal changes were made, a normative act that passed the Parliament through the assumption of responsibility by the Ciolacu Cabinet. One of the measures that would have affected the private business environment the most and that would have led to the disappearance from the economy of an important number of micro-enterprises and small and medium-sized enterprises was the limitation of cash payments and the reduction of the daily cash ceiling. Realizing the danger of losing important contributions to the state budget following the disappearance of those SMEs from the economy, the Government reverted to the initial measure, maintaining the old provisions that provide for a daily ceiling of 50,000 lei for each economic agent and maintaining cash payments at the level of 5,000 lei per day among economic agents, and at the level of 10,000 lei per day for individuals.

Out of the desire to compensate for the waiver of the reduction of the ceiling on cash payments and the daily checkout ceiling, the Executive has approved a normative act establishing the taxation with a minimum rate of 15% of the profit of large multinational and national groups or enterprises whose annual turnover consolidated is at least 750 million euros.

In order to meet the targets established with the European Commission both in the PNRR and to keep the budget deficit under control, the Government approved last month the project to amend the law on the public pension system, the normative act being adopted in an emergency procedure by the Parliament , passing almost without debate, fast-forward, through the specialized committees in the Senate and the Chamber of Deputies.

In November, we also recorded good news for investors in renewable energy capacities: the Ciolacu government approved the maritime space development plan, an act that clearly delimits the offshore perimeters where economic activities can be carried out that do not endanger the fauna and flora existing in the territorial area of our country from the Black Sea. On the basis of this act and the law on offshore wind farms awaiting Parliament's approval, it will be possible to start investments for wind farms in the Black Sea aimed at contributing to the energy independence of our country and the transformation of Romania into a regional energy hub.

On a macroeconomic level, we record the fact that the budget execution for the first ten months of 2023 published by the Ministry of Finance in November shows a budget deficit of 3.97% of GDP, i.e. 62.81 billion lei, a fact that led the respective ministry to resort to lending from the domestic banking system, but also from the population by issuing new state securities intended to attract another 5.675 billion lei to the state budget.

Under these conditions, the Moody's rating agency reconfirmed on November 3 the rating related to Romania's government debt at Baa3 for long-term debt and P-3 for short-term debt, as well as the stable outlook. Moreover, the National Bank of Romania maintained the monetary policy interest rate at 7% per annum, the interest rate for the lending facility (Lombard) at 8% per annum and the interest rate related to the deposit facility at 6%. At the same time, the central bank decided to maintain the inflation forecast of 7.5% for the last quarter of this year, estimating an inflation of 7.7% for the first quarter of 2024.

On the last day of November, the Return Guarantee System became operational, which establishes the selective collection of blankets, cans and bottles for both traders and end users.

For the past month, we also mention the fact that the former Prime Minister Florin Cîţu lost his parliamentary immunity and together with the former Ministers of Health, Vlad Voiculescu and Ioana Mihăilă, will be prosecuted by DNA prosecutors for abuse of office in the case of the acquisition of anti- Covid, for an estimated damage of one billion euros through the purchase of a larger amount of vaccine than was actually necessary.

In this domestically troubled context, President Klaus Iohannis spent two weeks on an official visit to Africa, on the Kenya-Tanzania-Cape Verde-Senegal route, a visit that was more like a tourist itinerary made a year ago before leaving the Cotroceni Palace.

The only good news for last month was received by the supporters of the national football team, after the players under the baton of the selector Edward Iordănescu managed to defeat Israel and Switzerland in four days and qualify from the first place in the group to the final tournament of the Championship European that will take place in June 2024 in Germany. The last qualification of the national football team at a final European tournament took place eight years ago, for Euro 2016, which was held in France.

• Fiscal changes retread

In November, the government adopted an emergency ordinance by which it changed the ceilings on the use of cash payments. The adopted normative act takes into account the opinions expressed by entrepreneurs through the survey carried out by the National Council of Small and Medium-sized Private Enterprises in Romania between November 3-6, 2023, as well as the reactions of society to the measures to limit the use of the numeral. Thus, we return to the situation whereby collections are made within the limit of a daily ceiling of 5,000 lei between economic operators. Collections made by cash and carry stores are limited to a daily ceiling of 10,000 lei per person. Fragmented cash receipts from beneficiaries for invoices whose value is greater than 5,000 lei and 10,000 lei, respectively, are prohibited in the case of cash and carry stores, as well as fragmenting invoices for a delivery of goods or a service services whose value is greater than 5,000 lei, respectively 10,000 lei. It is also prohibited to make fragmented cash payments to suppliers of goods and services for invoices whose value is greater than 5,000 lei and, respectively, 10,000 lei, to cash and carry stores. Individuals can pay invoices with values that exceed the ceiling of 5,000 lei, to suppliers of goods and services, respectively of 10,000 lei, to cash and carry stores, as follows: 5,000 lei/10,000 lei in cash, the amount exceeding this ceiling can be paid only by non-cash payment instruments.

Cash collection and payment operations between natural persons, other than collection and payment operations carried out through institutions that provide payment services authorized by the National Bank of Romania or authorized in another member state of the European Union and notified to the National Bank of Romania, carried out as a result of the transfer of ownership of goods or rights, the provision of services, as well as those representing the granting/repayment of loans can be carried out within the limit of a daily ceiling of 50,000 lei/transaction. Cash receipts and fragmented cash payments for transactions greater than 50,000 lei are prohibited, as well as the fragmentation of a transaction greater than 50,000 lei.

Also in the fiscal field, the members of the Ciolacu government approved a draft law on the amendment of the Fiscal Code regarding the value added tax (VAT). According to the normative act that was sent to the Parliament and which would enter into force on January 1, 2024, the provisions regarding the deadline for submitting declarations related to the special regimes provided for in art. 314, 315 and 315 of the Fiscal Code, expressly establishing the last calendar day of each month, even if it is a non-working day. In the current version of the Fiscal Code, it is stipulated that these declarations can be submitted until the end of the following month after the end of the fiscal period covered.

During the last month, the Executive also approved the draft law on ensuring a global minimum level of taxation of multinational enterprise groups and large national groups

The draft law adopted by the Government introduces regulations for the taxation of the profit of large multinational and national groups or enterprises whose consolidated annual turnover is at least 750 million euros with a minimum rate of 15%. This measure will generate a positive budgetary impact, which was not quantified in the substantiation note of the future normative act.

• The government starts the "Great Collection"

On November 30, the Government started the "Great Collection" with the operationalization of the Return Guarantee System, for which last month it adopted two more normative acts. Thus, through an emergency ordinance, the Executive established a system of contributions due by economic operators who introduce non-reusable primary packaging on the market, which are the subject of the Guarantee-return System for packaging. The payment of these contributions will be made for the difference between the quantities of non-reusable primary packaging corresponding to the annual objectives imposed and the quantities actually received. The resulting sums are used to finance the development of the waste management infrastructure in order to achieve the national objectives in the field, based on the strategy established by the central public authority for environmental protection. The government also approved HG 1075/2023, which amends and supplements HG 1074/2021 regarding the establishment of the guarantee-return system for non-reusable primary packaging. Following the changes, manufacturers are obliged to register each type of packaging in the SGR Packaging Register placed on the market, and traders are obliged to indicate the value of the guarantee separately from the price of the product, both on the shelf and in the fiscal documents related to the product in SGR packaging.

Practically, starting from November 30, 2023, whenever they buy a mineral or flat water, a soft drink, a beer or a bottle of wine, citizens will pay a guarantee of 50 money, which they will recover as soon as they return the empty packaging, obviously, either to the same store or to any other store in Romania, because all the stores that put such drinks on the market will also be collection points. SGR is the second largest guarantee-return system in Europe, after Germany. The establishment of RetuRO's collection centers will create over 600 jobs by the end of next year. The government estimates that annually more than 7 billion bottles, blankets or aluminum cans will be collected in this way, which will end up in recycling factories where they will generate jobs and investments. According to the initial data, more than 80,000 small and large companies are registered in the SGR, regarding the collection of recyclable packaging.

• The modification of the public pension system passes the Parliament

On November 9, the Government approved the draft law on the public pension system, which it sent to Parliament. According to the normative act, the pensions of over 4.7 million beneficiaries will be recalculated according to the new formula. The right to pension is obtained after a minimum of 15 years of contributions, without taking into account assimilated non-contributory periods (university studies, military training, medical leave, unemployment, deportation, imprisonment or political detention). Gradually equalize the retirement age for women and men at 65 by 2035.

For women, parental leave is considered a contributory period, and the retirement age is reduced by 6 months for each child (up to a maximum of 3 years and 6 months). Additional points will be awarded for contribution periods of more than 25 years according to the following formula: +0.5 points/year for the 26-30 years interval;

+0.75 points/year for the 31-35 age range; +1 point/year starting from age 36. Also, non-permanent increases for which contributions have been paid are taken into account when determining the pension: global agreement, 13th salary, hourly payment, awards, premiums, etc.

Pensions will increase annually, on January 1, with the average rate of inflation plus 50% of the real increase in the average gross salary. From January 1, 2024, the pension point will be increased by 13.8%, from 1,785 lei to 2,032 lei, and from September 1, 2024, pensions will be increased following the recalculation according to the new formula.

Based on a voluntary insurance contract, a maximum of 6 years old can be purchased.

According to the law, there will be the following types of pensions: old-age, disability, anticipated, survivor.

The law on the public pension system was adopted, with minor amendments, in an emergency procedure by the Parliament, on November 20, the final vote was recorded at the Chamber of Deputies as the decision-making body, despite vehement criticism from USR and AUR deputies.

Unfortunately, the public pension system planned by the Government will not be able to be fully implemented according to the new law, after the Constitutional Court of Romania decided in November that the law repealing the pensions of deputies and senators is unconstitutional.

• Continue the programs regarding the financial support of the business environment

Although it faces major problems regarding the collection of scheduled budget revenues, even if, according to last month's statements by Prime Minister Marcel Ciolacu, ANAF reached a record collection level of 40 billion lei in October, the Government continues to finance the programs that support the business environment. Thus, the Executive adopted in November an emergency ordinance which increased by 4 billion lei the total ceiling for this year of the guarantees granted through the IMM Invest Plus program, the respective funds will finance another 4,500 companies, which will bring the total number of support granted to 31,200 companies.

Also in order to support investors, but also to help the development of the energy sector in terms of renewable energies, the Government adopted an emergency ordinance by which it approved the maritime space development plan. The normative act identifies the spatial and temporal distribution of activities and uses in marine waters so that the competent authorities can establish the long-term principles and objectives, in order to minimize the negative impact on the marine environment and to support the sustainable development of the blue economy. The document has a regulatory nature and aims to promote a coordinated and integrated decision-making process regarding the sustainable development of the Black Sea region, through sectoral policies them coherently in areas such as aquaculture, fishing, exploration of crude oil, gas and other energy sources, mineral resources, as well as for energy production from renewable sources, maritime transport, extraction of raw materials, scientific research or tourism activities.

Moreover, for the financing of public investments, the Government approved the constitutive act of Banca de Investiţii şi Dezveltare - SA, a bank provided for in the PNRR. The mission of the Investment and Development Bank - SA is to support strategic projects that cannot find financing in the regular banking system, and its activity will be carried out in compliance with state aid legislation. The subscribed share capital of the Bank is 3 billion lei. The bank will be administered in a dual system, by a Supervisory Board made up of 7 members and a Board of Directors made up of 3 members.

• BNR keeps the reference interest rate at 7%

In all the macroeconomic context above, on November 8 the Board of Directors of the NBR unanimously decided to maintain the monetary policy interest rate at the level of 7% per year; at the same time, it decided to maintain the interest rate for the credit facility (Lombard) at 8% per year and the annual interest rate for the deposit facility at 6%. Also, the Board of Directors of the NBR unanimously decided to keep the current levels of the mandatory minimum reserve ratios for the lei and foreign currency liabilities of credit institutions.

In justifying their decision, the members of the Council pointed out that the annual rate of inflation continued to reduce in September and for the whole of the third quarter of 2023 in line with the forecasts, falling to 8.83%, from 9.43% in August and 10, 25% in June. The decline was seen to be slower than in the previous two quarters, as further broad declines in food and energy prices in this period were partly offset by higher fuel and drug prices. In contrast, the annual adjusted CORE2 inflation rate accelerated its decline in the third quarter, falling significantly below the forecast level to 11.3% in September from 13.5% in June, mainly as a result of the deepening of the disinflationary evolution of the prices of processed foods, but also in the conditions of tempering growth dynamics in the segment of non-food goods and services, noted the members of the Council.

Regarding the near-term outlook, Council members agreed that a significant deceleration of economic growth in the second part of the current year is likely, including compared to previous forecasts, implying a much more alert restriction of aggregate demand surplus in this interval, as well as a more modest annual GDP dynamics than previously anticipated. With regard to future macroeconomic developments, Council members indicated that the new assessments reconfirm the prospect of the annual rate of inflation continuing to decline over the next two years, on a higher trajectory in 2024 than previously forecast, but slightly lower during subsequent quarters. According to it, the annual inflation rate will decrease to 7.5% in December 2023, similar to the previous forecast, but will increase at the beginning of next year and then gradually decrease to 4.8% in December 2024, from 4, 4% in the previous projection, to accelerate its decline in 2025, falling at the end of the forecast horizon, namely in September, to the level of 3.3% in the upper half of the target range.

Compared to the BNR data, the European Commission showed that at the end of 2023, our country will register an economic growth of 2.2% and a budget deficit of 6.3% of the Gross Domestic Product. Last month, the European Commission revised down the estimates regarding the growth of the Romanian economy this year, from 3.2% as it anticipated in May, to 2.2%, due to the high inflation that limits real available incomes, the tightening of financial conditions and external demand, according to the autumn economic forecasts published on Wednesday by the community executive. According to the new forecasts, the Romanian economy would register a growth of 2.2% in 2023 and 3.1% in 2024, less than the advance of 3.2% in 2023 and 3.5% in 2024, respectively, according to the forecasts economic spring. As for the deficit, the European Commission's autumn forecast estimates that it is likely to reach 6.3% of GDP in 2023, the same level as in 2022. In this case, this is a significant upward revision. compared to the deficit of 4.7% of GDP foreseen in the spring forecast. The community executive expects the government deficit to be reduced to 5.3% in 2024 and 5.1% in 2025, as a result of fiscal consolidation measures to be implemented in January 2024.

Regarding the banking system, we remind you that on November 6, the prime minister Marcel Ciolacu and the representatives of the Romanian Association of Banks agreed that, both for individuals and for legal entities, bank commissions should not be increased. The implementation of government measures to combat evasion and maintaining bank commissions at the current level were the main topics discussed at the meeting between Prime Minister Marcel Ciolacu and representatives of the Romanian Association of Banks. The representatives of the Government and those of the Romanian Association of Banks have established a permanent consultation mechanism, in which the National Bank of Romania will also participate.

• Florin Cîţu, prosecuted by the DNA in the case of the purchase of anti-Covid 19 vaccines

Former Prime Minister Florin Cîţu lost his parliamentary immunity on November 29, after the Senate plenary approved the DNA's request to start the criminal investigation on behalf of the current liberal senator who is accused of abuse of office in the case of the acquisition of anti-Covid vaccines.

The National Anticorruption Directorate announced, a week before the plenary session of the Senate, that it had sent the general prosecutor of the Prosecutor's Office attached to the High Court of Cassation and Justice the report of a case in order to notify the President of Romania and the Senate for the formulation of requests for prosecution criminal charges against former Prime Minister Florin Cîţu and former Ministers of Health Vlad Voiculescu and Ioana Mihăilă regarding the commission of abuse of office offenses in connection with the purchase of the anti-Covid vaccine.

On November 27, President Klaus Iohannis complied with the request of the General Prosecutor's Office and gave the go-ahead to start the criminal investigation for the two former Ministers of Health.

On November 23, 2023, the anti-corruption prosecutors requested the lifting of his parliamentary immunity for the initiation of the criminal prosecution in personae in this file. The DNA attorneys state that the in rem investigation launched on September 15, 2021 resulted in evidence that shows that although the vaccine doses contracted prior to January 1, 2021 (37,588,366 doses) would have been sufficient to vaccinate more than 23 million persons, the three dignitaries (ed. - Florin Cîţu, Vlad Voiculescu and Ioana Mihăilă) allegedly transacted and ordered payment for the additional purchase of 52,805,690 doses of vaccine, in a total amount of 1,005,498,687 euros, at to which VAT is added, an amount that constitutes damage to the state budget, because the member states had the possibility to use, within 5 days from the notification, an "opt-out" clause, so they were not obliged to bear any kind of contribution for the vaccines they decided not to request.

Following the DNA action, USR notified Ursula von der Leyen, the president of the European Commission, regarding the respective file, accusing the case prosecutor of being anti-vaccine and that he has no right to question the appropriateness of the purchase decided by the government how much.