August budget adjustment cuts 4.5 bln lei off public spending

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Public spending will be reduced by 4.5 billion lei (approximately 1.97 billion euros) at the budget adjustment this August, Minister of Public Finance Gheorghe Pogea told a press conference on Tuesday.

The cut in public staff spending by the equivalent of the pay due for 10 workdays per employee between September – November will total 1.5 billion lei, or 0.3 percent of the GDP;

the scrapping of overtime compensations and bonuses for publicly-paid employees in 2009 is expected to save the budget 497 million lei; reducing spending with goods and services will keep 2.485 billion lei to the budget.

In order to keep within the new budget deficit target of 7.3 percent of the GDP agreed upon with the IMF for 2009, MFP will have to reach fiscal adjustment measures worth a total of 5.5 billion lei, of which 4.5 billion lei will result from cutting back on public spending.

On the other hand, the minimum tax on companies will funnel 300 million lei in additional revenues to the budget.

Budget revenues are estimated to decrease by 17.5 billion lei in 2009, under the effect of the unfavorable economic conditions. Pogea said that VAT collections are expected to decrease by 4.3 billion lei; social security contributions – by 5.5 billion lei; non-fiscal revenues – by 4.2 billion lei.

A negative budget adjustment will be operated in August, based on a decline of economy by 8 – 8.5 percent this year (from the initially estimated -4.1 percent), an inflation of 4.3 percent and a current account deficit of 5.5 percent of the GDP.

The GDP is estimated now at 497.3 billion lei, down from the initial 531.25 billion lei.
At the planned budget adjustment, state guarantees for projects with European financing will be supplemented by 400 million euros in 2009, and by 200 million euros in 2010, respectively.

The unemployment budget will get an 864 million lei boost, and the pension fund will receive 500 million lei more. In 2009, 5.4 billion lei will be transferred from the state budget to the pension budget, to rebalance it.

Following the adjustment, passenger rail carrier CFR Calatori will receive 364 million lei to cover overdue payments to suppliers, mainly for electricity bills; the Ministry of Administration and the Interior will receive 353 million lei for the border-securing program.

According to Minister Pogea, the enforcement of the measure of keeping reinvested profits tax-free as of October 1, 2009 will reduce budget revenues by 140 million le i, and the impact of the 2 pct increase in the pension point as of October means 200 million lei in budget efforts.

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