Finances

This subfield describes public finances (public budget) by means of indicators that look into public revenues, public deficit, public expenditures and public debt. The state is a fundamental actor in any modern economy, the provider of vital public goods such as: defence, public order, education, health and social services. The way the state allocates its resources, together with the efficiency of these resources’ use by authorities significantly influence development processes. Thus, the structure of public expenditures shows the state’s priorities. When the budget is low, expenditures cannot be high, irrespective of the field’s importance. Consequently, the issue is how to increase the budget, by increasing economic activity and efficiency and diversifying the sources that feed the budget. [Read more]

At the same time, the indicator Public revenues (% of GDP) shows that Romania has low revenue collection, compared to EU average. Romania occupies the last position in the EU regarding VAT collection, the collection deficit being 39.6% in 2015 – the highest in the region (PwC, 2016). Profit tax is marginal (approximately 6% of total fiscal revenue, on the decrease), just as property tax (approximately 2% of total fiscal revenue, on the decrease), as shown in data on budget execution in 2016-2017 (Ministry of Finances, 2018). When a state collects insufficiently and spends more than the economy’s potential, mostly for stimulating consumption, public deficit is inevitable. These aspects are highlighted by indicators that show the dimension of public deficit (the imbalance between revenues and expenditures) and the evolution of public debt in the long term. In Romania, deficit in the last 20 years has been over 70 billion euro, while public debt has been over 65 billion euro (at 39% of GDP). In the last 7 years only, the deficit has added a 31 billion euro public debt (enough for approximately 3.000 kms of highway!).