The flat tax has generated larger revenues to the state budget, which makes NBR Governor Mugur Isarescu feel that its effects, called into question for a long time, could be beneficial, after all.
"The fact that we have larger revenues cannot be neglected. Eighteen months later, the flat tax might be showing effects. If it worked in Slovakia, why wouldn't it work here, too?" Isarescu rhetorically wondered during the conference where he presented the second quarter inflation report. He points out that the "unexpectedly positive" development of revenue is consistent with how it feels from NBR's standpoint.
The revenue of the general consolidated budget rose by 38.4% this July compared with last July, to 2.63 billion euros (9.4 billion RON). The rate of growth that exceeded 38% in July is double the average of the first six months, when budgetary revenues went up by 20% in nominal terms in RON. Isarescu yesterday explained during the above-mentioned conference that the budget deficit could be visibly lower than the 2.5% of GDP target announced, as revenues of the budget exceeded initial estimates by far.
"The much-disputed budget deficit might not be attained, and that is not only because of the incapability to spend but also because revenues were underestimated," Isarescu stated.
The Governor explained that, from a conversation with the Finance Minister, he gathered revenues were even higher than estimated, and the state budget had a significant surplus at the end of July, some 1.2% of GDP. The general consolidated budget posted a one billion-euro surplus at the end of June, that is 1.12% of GDP.
The Government upped the budget deficit target twice this year, from 0.5% to 0.9% of GDP and later to 2.5% of GDP, to boost spending on infrastructure investments. Budgetary revenue forecasts were revised upwards, as well.
Investments paid for with public funds (the capital expenses of the budget) were lower than subsidies in the first half, because most ministries pushed back their spending for the second half.
The Governor was reluctant in his comments on how the budget spending allows for accumulating such a surplus, merely pointing out that reimbursements for investment projects are only made when the projects are finished.
"Spending money on investments is much harder than spending on goods or salaries," Isarescu commented.
On the other hand, the Governor noted the high productivity increase over the last few months yesterday. A year ago, the decline in productivity was raising serious questions as far as the NBR was concerned.
"The latest productivity data is telling me that we might have a potentially higher GDP that inputted into the model, of 5.5%," Isarescu commented
The output witnessed more than 10% growth over the last few months, which "raises questions" about the potential GDP, the Governor says. Nevertheless, NBR still believes there is excessive demand, which should be under control until the first quarter of next year, when the GDP is projected to drop below its growth potential.
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