Romania’s largest employer association says the ever widening budget deficit is siphoning money away from the real economy, and some companies are putting off investment as they await an expected fiscal correction, Reuters reports, told Agerpres.
The upcoming presidential and parliamentary elections due in November and December have triggered a spending surge that is expected to push the budget deficit to 8% of GDP this year, and the government that will be installed faces the daunting task of bringing the shortfall below the European Commission’s ceiling of 3.0%, which is why ratings agencies and analysts expect tax hikes.
Without a budget blueprint for 2025 available, investors are wary of “shock therapy, meaning out-of-the-blue taxes thrown at the private sector,” Radu Burnete, director of the employer association Concordia, told Reuters in an interview.
“A deficit of 8.0% is dangerous because if something happens – war, a calamity of some sort – Romania has no more room to borrow. We want to see a settled plan that brings the deficit under control, one that does so also by making state spending efficient,” Burnete said.
“If wages continue to rise faster than productivity as they are now … without creating other competitive advantages, at least 13 industries will see companies shutting down or restructuring,” the trade union leader said.
Ratings agency S&P said Romania had seen one of the largest increases in real disposable income in the world over the past year, driven by a 20% increase in public sector wages, the rise in the minimum wage, and a substantial pension hike.
Burnete noted that Romania’s economy had been affected by wage gains and high energy prices that, even capped for some industries, are higher than those of Asian competitors, particularly in high-export industries such as car parts and furniture. He also mentioned that the hurdles were far too high for small and medium-sized Romanian firms to open branches or subsidiaries elsewhere in the bloc, a single market that nevertheless has 27 different legal and fiscal codes.
Concordia is Romania’s largest employer association, representing companies from 17 industries that together account for 26% of the country’s economic output.