Government’s investment spending continued to decline, by as much as over 40% in the first four months of the year, which can easily be seen in the infrastructure work progress, with a negative impact on the economic growth.
Bad news came from the VAT in the first four months, which generates most money for the state budget and is the second most important stream of revenue for the consolidated budget after the social security contributions. The VAT, which reflects consumer spending to a certain extent, only generated 16.4 million lei (EUR3.7 million) revenue for the budget, a mere 2.7% increase on the first four months of last year. On the other hand, retail sales picked up the pace, rising by as much as a two-digit rate in March. An increase in retail sales should normally lead to an improvement in VAT collection.
“The much better than expected performance of macroeconomic indicators and the rebound of domestic demand as the economic growth driver in the first part of the year are in stark contrast with the trend of the budget revenue. The explanation for this probably has to do with an increase in tax evasion and, to a lesser extent, with the reduction of budget revenue collection capacity due to the reorganization of ANAF (the tax authority),” says Ionut Dumitru, chairman of the Fiscal Council and chief economist of Raiffeisen Bank.
Total budget revenue, one of the most eagerly watched indicators, rose by a mere 4.4% to RON67.8 billion in the first four months. It failed to replicate the trend of the economic activity, even though the economic growth structure improved (in terms of impact on budget revenue) and domestic demand became its main growth driver, replacing exports, which fuelled the 2013 growth.
“Leaving out the transitory effects over budget revenue, the tax revenue as a percentage of the GDP has been dwindling since the second half of 2012-early 2013,” the Fiscal Council chairman says.
He warned that unless budget revenue collection improved a great deal over the coming months, Romania might end up having to make significant spending cuts at the two budget adjustments in the second half of 2014, even if the 2014 economic growth forecast improves a lot.
Excise duty collection increased by 15% compared with the first four months of 2013 to RON7.7 billion.
Profit tax collection went up almost 13%, while payroll tax revenue dropped 2.1% to RON7.4 billion.
Budget deficit dropped to 0.28% of the GDP from 1.19% in the year-ago period, partly because of the decline in budget spending by 3.8% in January-April. Capital expenditures saw a significant decline as in the previous months. They were down 42.4% in January-April compared with the same time last year, reaching RON3 billion.
(English version by Loredana Fratila-Cristescu)