Gvt., mission impossible: It either slashes expenses, or hikes taxes

The Government should axe at least a further 3bn euros from expenses next year to meet the ambitious target of cutting the budgetary gap to 4.4% in GDP, with renewed tax increases as the alternative. Analysts believe, though, that in 2011 there is no more room for increased taxation if an economic rebound is wanted, after recovery chances were buried in 2010 as the VAT was raised to 24%. It remains to be seen how much the Finance Ministry will manage to collect to the budget with the introduction of the new tax evasion legislation and on income taxation base broadening. What’s certain is that, in line with IMF data, even along the scenario of 3.6% economic growth in 2011, included in the IMF’s bullish alternative, the weight of revenues in GDP was forecast to stay at the same level as this year, that is of 32.6% in GDP. But the economy is expected to contract this year as well, by around 1.9%, in line with the latest estimates. And in 2011, when economic growth of just 0.5-1% is projected, the probability of collecting more money to the budget is even lower. There is thus the danger that a renewed adjustment of budgetary expenditures should be the solution, after the Government has so far proved unable to make local authorities reduce material expenses. As regards taxation system outlooks, Romanian authorities say an additional tax increase in 2011 is not under consideration at the moment.