Preliminary Opinion: The Fiscal Council anticipates a larger budget deficit in 2024

After examining the first set of documents sent by the Government on December 9 regarding the state budget for 2024 and the budget projections for the period 2025-2027, the Fiscal Council considers that it is very possible that the budget deficit next year will significantly exceed the deficit for 2023 , there are major risks regarding the budget consolidation process, according to the preliminary opinion published yesterday by the public institution.

According to the draft law of the state budget for next year proposed by the Government, we will have a deficit of 5% of the Gross Domestic Product at the end of 2024, which in nominal terms means the lack of 86.6 billion lei, compared to the deficit of 5, 9% estimated by the Ministry of Finance for the end of 2023.

In the document signed by Daniel Dăianu, the president of the Fiscal Council, it is stated: "Regarding the medium-term projected fiscal-budgetary framework, the budgetary consolidation in the period 2025-2027, as provided for in the documents received on December 9, is projected to it was made exclusively on the expenditure side, the share of budget revenues in GDP indicating a downward trend in the analyzed period. This strategy raises questions about the achievement of fiscal consolidation targets. The commitments within the PNRR and the situation of the public budget in Romania imply, on the revenue side, the adoption of some recommendations of the World Bank, of other international institutions, of some domestic analyzes that lead to the increase of tax revenues, and, on the expenditure side, the adoption of a new law of the unitary salary. Measures arising from these recommendations are not found in the projections for the period 2025-2027".

The text mentions that in its opinions and analyses, the Fiscal Council showed that macroeconomic adjustment and fiscal consolidation need a significant increase in fiscal revenues, which are at a very low level in relation to Romania's needs and compared to EU benchmarks. Furthermore, the Fiscal Council points out that "in the evaluations it makes, it cannot take into account hypothetical incomes having as its source the increase in collection efficiency/reduction of tax evasion/digitalization of tax administration".

In the preliminary opinion, the Fiscal Council states that in the afternoon of December 13, the Ministry of Finance sent a new set of documents regarding the draft budget for 2024 and the medium-term fiscal-budgetary strategy (SFB) which significantly changes the trajectories of the budgetary variables on the entire forecast horizon, both as a result of some changes in the assumptions considered, and as a result of an Emergency Ordinance of the Government to be approved together with the draft budget for 2024 and SFB 2024-2026.

The Fiscal Council points out that, given the extent and complexity of the changes made to the draft budget and SFB 2024-2026 through the documents sent on December 13 and the Government's intention to approve the draft laws on the state budget and the social insurance budget during a meeting announced for December 14, the public institution is unable to revise the extended opinion, and therefore decided to issue a preliminary opinion.

In the preliminary opinion it is also said: "The Fiscal Council also emphasizes on this occasion the need for such important documents to be sent with adequate time in advance for examination. The Fiscal Council understands the great pressure under which experts from the Ministry of Finance drafted the draft budget for 2024 and the SFB, but a serious assessment cannot be made in a few days, let alone in 24 hours. In the next period, the Fiscal Council will analyze the new set of documents received and issue an extended opinion".

According to the cited source, the extended opinion will include: the evaluation of the global context and that of the Romanian economy; compliance with the fiscal rules provided by the law of fiscal budgetary responsibility; an analysis of the draft emergency ordinance regarding some fiscal and budgetary measures in the field of public expenditures, for fiscal consolidation, combating fiscal evasion, for the modification and completion of some normative acts as well as for the extension of some deadlines; an analysis of the new fiscal-budgetary framework, the draft budget for 2024 and the perspective for the period 2025-2027; developments in the absorption of European funds and related PNRR funds; details regarding the implementation of spending reviews by the Ministry of Finance and line ministries in Romania; considerations on the VAT collection gap, including making international comparisons; a synthesis of the fiscal reform proposals recommended by international financial institutions and aspects regarding the labor market in Romania.