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AmCham Romania News AmCham Romania Point of View: A sustainable and credible fiscal-budgetary trajectory is not possible without structural reforms and without a firm commitment for long-term efficiency measures

AmCham Romania Point of View: A sustainable and credible fiscal-budgetary trajectory is not possible without structural reforms and without a firm commitment for long-term efficiency measures

by AmCham Romania April 27, 2023

The American Chamber of Commerce in Romania (AmCham Romania) expresses the concern of the business community it represents regarding the high risks of deviation of the budget deficit from the adjustment trajectory that Romania has committed to at the European level.

AmCham Romania, along with other business associations, repeatedly advocated for a constructive dialogue and partnership in support of a coherent fiscal framework and of a sustainable budget policy, to ensure predictability and stability much-needed for the continuity of investment flows and economic growth.

We believe that publicly launching working hypotheses regarding intentions to increase the fiscal burden generate tension and mistrust, affecting both the quality of the public-private dialogue and of the overall investment climate Such a rhetoric sends a discouraging signal to economic operators with a significant contribution to the well-functioning of the economy, through their operations/activities that generate added value, their investment plans, and the taxes paid to the budget.

AmCham Romania underscores that the financing of the budget deficit is currently done through the financial markets and the cost of this financing is determined by the coherence and predictability of the reforms implemented by the Government. The evolution of the current account deficit, which in 2022 reached a record level of 26,571 billion euros, an increase of 52.1% compared to the previous year and with a coverage of 62.5% through FDI and the capital account, demonstrates the national economy’s need for external financing and the interdependencies with private capital, external markets, and foreign investors.

The current economic and geopolitical context calls for a prudent approach by decision-makers and a commitment to a credible and sustainable fiscal-budgetary trajectory. Increasing the efficiency of budget expenditures involves an increase in their quality along with the reform of the administrative apparatus and must be complemented by the implementation of the structural reforms committed through the NRRP, that will contribute to increasing the share of budget revenues in relation to GDP. They must be implemented seriously and consistently, not only to secure the absorption of NRRP funding and contribute to the budgetary consolidation, but above all to address the structural problems that have been hindering Romania's development potential for years.

In order to reduce the risks of deviation of the deficit from the assumed adjustment trajectory, AmCham believes the following directions should be prioritized:

  • Compliance with the fiscal-budgetary consolidation commitment – a precondition for restoring the macroeconomic balance, particularly since Romania is under pressure to correct the excessive budget deficit. We expect a coherent and realistic plan to fulfil the commitment towards the European Commission for exiting this procedure in 2024. Deviations from the budget adjustment trajectory generate opportunity costs for Romania – an important example is the impossibility of accessing additional loans from the non-contracted allocations of other members states from the European Recovery and Resilience Mechanism, in the context of the NRRP revision, due to the excessive deficit procedure for Romania;
  • Increasing the collection rate of budgetary revenues and strengthening the institutional capacity of ANAF, including by accelerating digitalization, automation, and data analysis. The materialization of reforms and investments from PNRR for the digital transformation in the tax field (C8 R1, respectively I1, I2 and I3) will contribute to reducing evasion and increasing voluntary compliance, generating savings on tax administration expenses;
  • The modern and targeted approach of the transfer pricing problem – to address effects such as the erosion of the taxable base or the alteration of the competitive environment, by reference to the practices implemented in other European states with similar legislation. It is also necessary to strengthen the administration in order to manage transfer pricing files, especially the litigation component;
  • Eliminating tax optimization mechanisms that leave room for abuses – the tax reform must result in the resettlement of the tax system on a fair basis and countering forms of labor tax evasion, including black and grey market, that negatively affect both the budget and private companies facing strong unfair competition;
  • Broadening the taxable base – by gradually revising the various exceptions/ preferential treatments, considering both fiscal and economic interest, in tandem with capping health and pension contributions at a reasonable number of average wages in the economy, a measure constantly promoted by the private sector.

The future budget rectification must consider the efficiency of budget expenses and the restructuring of the way of allocating resources with the prioritization of productive investments and expenditure at the level of the budget envelope, correlated with the correct and realistic forecast of revenues to the public budget.

Beyond fiscal-budgetary discipline, political responsibility is also needed to ensure the sustainability of public finances in the medium and long term, especially in the context of the upcoming multiple rounds of elections in 2024.


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