The Government yesterday endorsed the draft of the consolidated budget for 2005. The draft sets targets for deficit of 1.5% of GDP against economic growth of 5.3%, inflation of 7% and a current account deficit of 5.4% of GDP, announced Public Finance Minister Mihai Tanasescu.
It also includes a number of changes to previous announcements. The inflation target was revised upwards from 6% to 7%, calculated for December 2004-December 2005.
The estimated current account deficit is 0.2% higher in terms of GDP than agreed upon with the International Monetary Fund.
The Government also predicts economic growth will be 0.1% higher than initially calculated. Tanasescu said Romania would see the highest growth in Europe this year at 7.6%.
Next year’s GDP should amount to 2,615,000bn ROL, in absolute value. General consolidated budget revenues are estimated at 815,929bn ROL, down 0.3% as a percentage of GDP compared with 2004.
The lower share of budgetary revenues in GDP is explained by the taxation curbing measures scheduled for January 1, 2005, whereby profit tax will cut by 6% to a level of 19%, while the taxation of individual incomes will be taxed in three tax brackets, with tax quotas being subsequently modified.
The minimum levy will be reduced to 14% from the current 18%, while the new maximum levy will be 38%, two percent points lower than the current rate.
Tanasescu says the budget was built around an average exchange rate of 35,150 ROL/USD and 42,550 ROL/EUR. Expenses provided for in the budget amount to 855,851bn ROL.
Arrears are forecast to go down by 6-7% in 2005, following completion of the energy sector privatisation.
The Finance Minister explained that the budgetary deficit would be the main anchor used in the inflation-curbing process.
The low budgetary deficit was planned for with the tax cuts in mind, though budgetary expenses are bound to increase visibly from 2007 to 2008.
“The sudden tax decline brings with it with a certain risk. We have additional guaranteed revenue of 20,000bn ROL, which is conditioned to certain behaviour, however. If we don’t see this behaviour, the entire 2005 fiscal construction will crumble,” Tanasescu explained.
He feels it is too early to adopt a more aggressive programme, at a time when NBR will proceed with inflation targeting and liberalising the capital account.