Romania’s ruling party promises to get money for higher pensions

The Romanian Government’s spokesman Ionel Danca outlined a list of measures supposed to bring more money to the state budget in order to pay the higher pensions next year and further increase pensions by 40% in September 2020, Adevarul reported.

Out of the measures he outlined, the most credible is increasing VAT collection, but it’s uncertain how much extra money this will bring to the state budget, and Danca mentioned no specific target.

Instead, the Government’s spokesperson said that this year’s VAT collections fell RON 4 billion (EUR 840 million, nearly 0.4% of GDP) below the target.

Indeed, the VAT gap is huge in Romania: some EUR 6 bln or 3% of GDP according to the European Commission’s estimates, and if reduced by one quarter (to EUR 4.5 bln) it could finance alone the increase in pensions.

However, more details on how the Government plans to achieve such a target are needed in order to make the plan credible.

The other measures outlined by Danca are small improvements, which might generate some cash nonetheless: downsizing the structure of the public administration (yet politically and bureaucratically complicated), cutting on the overhead expenses (partly tied with the former measure), and cutting the cost of public borrowing.

The latter measure depends on public debt management, but also on the investors’ sentiment. Danca said that the Government already reduced by RON 500 million (EUR 105 mln) the interest expenditures, but he has not detailed on how this was achieved.

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