Acasă » General Interest » Economics&Markets » CONAF: Fiscal consolidation – a risky exercise, the fiscal burden negatively affects the economy

CONAF: Fiscal consolidation – a risky exercise, the fiscal burden negatively affects the economy

7 August 2023

The National Confederation for Feminine Entrepreneurship (CONAF) believes that the first package of measures to reduce the budget deficit presented by the government, focused on reducing state expenses, including in public companies, is an efficiency exercise presented by the governing coalition, according to a statement.

At the same time, CONAF warns that the lowering of the threshold for micro-enterprises, the transition to profit tax as a micro-enterprise, the increase in property taxation and the increase in VAT are measures that can negatively affect small and medium-sized entrepreneurs, with immediate effects on the economy, which will also slow down budget receipts , which will decrease, contrary to the expectations of the governors.

“We draw attention to the fact that the only certainty for the future of the country’s finances is to ensure a sustainable growth of the economy. Any fiscal measure that could slow down economic growth will have a negative effect not only on the directly affected entrepreneurs, but also on the state’s revenues. It is a classic postulate in economy, a warning given by John Maynard Keynes: You will never balance the budget through measures that reduce the national income… Take care of unemployment, and the budget will take care of itself,” said Cristina Chiriac, president of CONAF, according to Agerpres .

A first package of measures, officially assumed, aimed at controlling state expenses through restructuring in the budget sector, job cuts, including the decrease in the number of state secretaries, the limitation of increases granted to budget staff and the capping of some per diems, vacation vouchers and telephone subscriptions was presented by Prime Minister Marcel Ciolacu and the Minister of Finance, Marcel Boloş.

According to CONAF, the Government’s intention to consider alternative solutions for capitalizing on state assets, analyzing the balance sheets of state companies, reducing the number of directors and advisors and capping salaries in state agencies and companies is an essential step for the development of the economy , but also for balancing the state budget, which many public companies and agencies parasitize through inefficiency.

“The plan regarding alternative measures is ambitious and will be able to be successfully implemented if the government manages its assets with the determination of an investor. In essence, the announced measures are aimed at increasing the efficiency of spending, reducing irrational and exaggerated costs and recalibrating state institutions according to real needs and their efficiency,” said Cristina Chiriac, president of CONAF.

An analysis by the Fiscal Council, which evaluates the evolution of state companies in 2021, finds that, of the 787 state-controlled companies, only a few are efficient, the rest being loss-generating and producing arrears to the state budgets (-2.7 billion of lei), towards suppliers (8 billion lei) and towards partner companies.

“This is how the state budget loses money directly from its own negligently managed businesses and, therefore, we believe that the attention given to their management must be concreted through effective measures. Our interest in the management of state companies is massively justified by the problems they generate for Romanian entrepreneurs by delaying payments to suppliers and the services rendered to them, which create blockages in economic activity,” stated Cristina Chiriac.

In this process of evaluating the activity of the companies where it is the majority shareholder, the state must also take into account the listing of some shares on the Bucharest Stock Exchange.

The listing of some stock packages on the Stock Exchange will solve the difficult equation of budget receipts both immediately, by selling the shares, and in the future, by streamlining the activity and increasing the profits of the listed companies, which will deliver increased dividends to the state budget.

This first stage of measures that the government intends to take to moderate the budget deficit could “save” only 2.5 billion lei from the budget deficit.

The Minister of Finance avoided giving details regarding the next round of fiscal measures, which will be discussed in the following days, but the information appearing in the press worries the business environment.

According to the cited source, fiscal consolidation is an extremely risky exercise, especially in an economy affected by overlapping crises, with persistent inflation, permanent uncertainty regarding the evolution of energy prices and in the context of the slowdown in the economies of our European partners.

“All measures affecting the business environment must be carefully analyzed and taxation changes must not be introduced during the fiscal year. We understand that the increase in the budget deficit in the first half of the year is risky, both from the perspective of attracting European money and from the perspective of the evolution of the economy Romanian, which needs the state’s investments, which an excessive deficit can limit”, the press release also says.

CONAF states that the math applied to the budget equation shows that an increase in taxes will increase tax revenues. In the economy, however, the impact of tax increases influences prices, which increase, consumption decreases, it puts pressure on small and medium-sized businesses, which either fire employees or suspend their activity.

“The effect will be a decrease in tax revenues and it will not be a surprise. In addition, an increase in prices stimulates inflation, which maintains the high level of interest rates or, worse, if inflation gets out of control, it may even increase the costs of lending. Another unwanted and apparently ignored effect of the measures in the additional package that will affect the business environment is the inability of entrepreneurs from small and medium-sized companies to access European funds, because businesses will be disturbed by the new tax conditions, inflation will keep credit costs at a prohibitive level, and the banks will narrow the access of these companies to credit. We will end up in the undesirable situation of making sacrifices for the European money that we will not be able to consume in the economy,” added the president of CONAF.

At the same time, CONAF believes that the elimination of fiscal facilities must be accompanied by a review of the formula for calculating labor taxation, as such the horizon of application of this possible decision must be fiscal year 2024, not in the last quarter of this year.

“Yes, we understand that the government is analyzing the waiver of these tax facilities granted to certain economic branches, but this exercise should be accompanied by a reduction in taxation on labor,” the organization’s statement states.

The government must carefully evaluate an anomaly of taxation in Romania, namely the aggressive taxation of labor, which, moreover, has led to the appearance of a series of tax facilities for certain areas, which the rest of the employees perceive as incorrect, states the quoted source.

“We draw attention to the upheaval in the activity of micro-enterprises, which have been crushed by changes in the tax system in the last period, and new changes expected to be applied will destroy most small businesses. Micro-enterprises operate in an uncertain and unpredictable regulatory environment, which will justify the abandonment of businesses, with a negative effect on economic growth, unemployment and, implicitly, on the budget deficit. In less than a year, micro-enterprises have switched from one income tax system to another, with the obligation to hire an employee, because now they have to plan the prospect of other changes. It’s an aggressive treatment by the state towards micro-enterprises, which must be reviewed,” Cristina Chiriac also said.

According to CONAF, if the business environment will be affected by tax increases and aggressive taxation, companies will lay off employees or close the business, and the immediate effect will be an undesirable one: tax revenues will drop massively. At the same time, if the Government supports small and medium-sized businesses, then the increase in jobs is ensured, and tax revenues will increase.

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