402 THE EVOLUTION OF FISCAL INDICATORS IN THE LAST YEAR S IN ROMANIA Morar Ioan – Dan University of Oradea, Faculty of Economics Sabau-Popa Claudia… [613136]

402 THE EVOLUTION OF FISCAL INDICATORS IN THE LAST YEAR S IN
ROMANIA
Morar Ioan – Dan
University of Oradea, Faculty of Economics
Sabau-Popa Claudia Diana
University of Oradea, Faculty of Economics
Kulcsar Edina
University of Oradea, Faculty of Economics

Tax revenues are an important part of budget revenu es, and their structure represent the mirror
of government's fiscal policy. Also their level an d structure reflects the evolution of the economy
in general. The evolution of tax revenues has been influenced by the financial crisis of this
period. The tax revenue structure in Romania is cha racterized by relatively high share of indirect
taxes revenues in comparison with another European Union states, where the share of revenues
from direct, indirect taxes and social contribution is relatively close.
Government expenditure is vital for the economy esp ecially if they are focused on productive
areas. They are the engine of economic developments and plays an important role in raising the
standard of living of population in a state. In the last years, the growth rate of public expenditure
was higher than the trend of tax revenues increase. Sizing revenue and public expenditure is
essential for achieving the budget balance target a nd to meet the criterion stipulated in the
Stability and Growth Pact. According to the Pact, t he budget deficit may not exceed 3% of GDP.
This development asymmetric led to increased defici ts in the last years.
The high level of structural deficit has canceled a n initiative to tax relaxation in this recession
period. The need for fiscal consolidation has been paramount in the context of chronic deficit and
difficulties faced in financing it. The opportune s olution to finance the high public deficit and to
achieve the objective of financial stability of the economy was contracting of public debt from
International Monetary Fund. Other measures to redu ce the deficit were the reduction of public
expenditure and increasing tax revenues.
We propose in this paper to analyze the evolution o f fiscal indicators in comparison with the
evolution of macroeconomic indicators to capture th e reaction of taxpayers and economic
environment at measures adopted.

Keywords: fiscal, tax, fiscal revenues, budget, fin ancial crisis

Coduri JEL: E60

I. Introduction
The importance of fiscal policy of a state budget i s derived from the impact that it manifests on
the main macroeconomic indicators which reflect pro gress through economic growth. The fiscal
–budgetary policy must be linked to macroeconomic p olicies and support macroeconomic
stability objective. The main objectives of fisca l-budgetary policy are to stimulate the economic
activity, rising living standards, fiscal consolida tion, promotion of countercyclical fiscal policies.
The mirror of fiscal-budgetary policy is a state bu dget, which includes destinations of financial
resources and their sources of funding. Some author s considers that budgetary policy represent
the concept and actions of government for public re venue and expenditure, the means to raise
revenue, the types and size of expenditure which ca n interfere in the stabilization and economic
recovery( Dobrot ă N 1999:354). Although the architecture of revenue and expenditure depends

403 from economic priorities of a state, it must adapt to situations at a time. Through the budgetary
policy is reflected the efficiency of public expen diture use and management and the allocation of
financial resources. The level and structure of pu blic revenue and expenditure reflects the main
trends, directions for action in a state economy. S o do not neglect “the important role of policies
and budgetary levers in the modern economy”, like i t is highlighted by Constantin Tulai
professor(Tulai C. 2007:68). Fiscal policy offers t he main tools which is used by the government
to influence the economy trough changes in taxation level or public expenditure adjustment.
Fiscal policy plays an important role in mitigating the economic cycle. According to several
experts which we subscribe too, the effectiveness o f fiscal policy is reflected by its role of
stabilizing the economy. Thus, we can say that the optimal tax policy is acting to mitigate the
amplitude of business cycle fluctuations, that in p eriods of recession adopt a lax behavior and in
the expansion periods a more restrictive behavior. An important indicator by means of we can
estimate if the fiscal policy performs the stabiliz ing role is the structural deficit. The structural
deficit shows how many from the fiscal-budgetary po sition level reflected through taxes,
transfers, expenditure due to economic conditions a nd how many due to fiscal policy decisions
taken. The analysis of this indicator reflects the sustainability of fiscal policy.( Raport anual:
Evolu ții și perspective macroeconomice și bugetare 2011: 23-24)
By the side of monetary policy, fiscal policy has a n important role in the general economic policy
objectives. While monetary policy acts on short-ter m, the effects of fiscal-budgetary policy is
outlined in a medium or long time horizon. However the objectives of the two categories of
economic policies must be linked.
In the context of Romania integration into the Euro pean Union, another concern is adapting the
fiscal-budgetary policies to EU requirements. Optim um sizing of public revenue and expenditure
is essential to achieve budget balance and to respe ct the objective criteria laid down in the
Maastricht Treaty. According to the Treaty, the bud get deficit must not exceed 3% of GDP.
The current financial crisis has exposed some weakn ess of fiscal budgetary policy direction of
Romania that pro-cyclicality. Thus, in the context of excessive growth in the budget deficit in
Romania is necessary a budgetary and fiscal consoli dation. A growth model based on debt and
increase investment in housing and consumer sector, high budget deficits have required fiscal
consolidation efforts.

II. The evolution of main fiscal indicators in peri od 2000-2010
Procyclical nature of fiscal and budgetary policies of economic growth before the financial crisis,
canceled fiscal space to stimulate the economy duri ng the recession claiming the need to reduce
high budget deficit during the crisis and maintaini ng pro-cyclical fiscal and budgetary policies.
Although Romania is the country with the highest GD P growth in Europe but in the short term
this situation marks a number of uncertainties abou t the outcome of the deep financial
crisis(Raport privind situa ția macroeconomic ă pentru anul 2009 și proiec ția acesteia pe anii 2010-
2012: 8).
Analyzing the revenue and expenditure in the period 2000-2010, we notice a trend of growth, but
it is noticeable that since 2006 public expenditure growth has outmatched the strong growth trend
of public revenues. The share of public revenues in GDP in the period 2008-2010 is situated
between 32.2% and 32.7%, while the share of expendi ture in GDP have been growing larger,
ranging between 37-39, 5%( Ministry of Finance – Raportul la proiectul Legii bugetului de stat pentr u
anul 2011 și orizontul 2012-2012: 9).
This development resulted in an exaggerate increase in the budget deficit. Unlike other European
Union countries (Ireland, Belgium), where the exces sive budget deficits growth is due by
measures adopted by national governments to support the banking system, in Romania the
budgetary deficit is determined by two main factors : the dramatic loss of budget revenues caused
by the GDP collapse and the structural deficit accu mulated by Romanian before the starting of

financial crisis. If in the period 2001
the Maastricht Treaty, since 2008 the share of budget deficit to GDP
about 5.7% from GDP, excee ding far the
measures aimed primarily efforts to increase tax re venue by increasing the VAT rate
the expenditure side, efforts were directed towards a reduction in salaries of public sector,
complemented by reducing the number of employees, a decrease of 15% of most social benefits
and reduce spending on goods and services by 10%.
Graphic 1. Evolution of revenue,
Source

By the side of public revenues, Romania is the stat e with the lowest share of budgetary revenues
in GDP (32.4% of GDP in 2009), in comparison with o ther European Union countries, with about
11% low er than the EU average. Also the share of tax reven ue to GDP is below the EU average.
Analyzing chart below we notice a downward trend in the share of fiscal revenues in total
government revenue, emphasizing in the period 2009
economic slowdown and GDP downward during 2008
revenues in total revenues during 2009
revenue in the total income.
-40000.0-20000.00.020000.040000.060000.080000.0100000.0120000.0Million Lei
REVENUES
404 the period 2001 -2007, the budget deficit was fitted within the limits set by
the share of budget deficit to GDP has significantly increase
ding far the permitted threshold of 3 % of GDP. Fiscal adjustment
measures aimed primarily efforts to increase tax re venue by increasing the VAT rate
the expenditure side, efforts were directed towards a reduction in salaries of public sector,
complemented by reducing the number of employees, a decrease of 15% of most social benefits
and reduce spending on goods and services by 10%.

of revenue, public expenditure and budgetary deficit 2000
Source : Ministry of Finance- www.mfinante.ro
By the side of public revenues, Romania is the stat e with the lowest share of budgetary revenues
in GDP (32.4% of GDP in 2009), in comparison with o ther European Union countries, with about
er than the EU average. Also the share of tax reven ue to GDP is below the EU average.
Analyzing chart below we notice a downward trend in the share of fiscal revenues in total
government revenue, emphasizing in the period 2009 -2010. This evolution is certa in
economic slowdown and GDP downward during 2008 -2009 period. Reducing the share of tax
revenues in total revenues during 2009 -2010 budget is offset by an increase of share

REVENUES – total TAX REVENUES within the limits set by
has significantly increase
Fiscal adjustment
measures aimed primarily efforts to increase tax re venue by increasing the VAT rate with 5%. On
the expenditure side, efforts were directed towards a reduction in salaries of public sector,
complemented by reducing the number of employees, a decrease of 15% of most social benefits
2000 -2010

By the side of public revenues, Romania is the stat e with the lowest share of budgetary revenues
in GDP (32.4% of GDP in 2009), in comparison with o ther European Union countries, with about
er than the EU average. Also the share of tax reven ue to GDP is below the EU average.
Analyzing chart below we notice a downward trend in the share of fiscal revenues in total
in ly due to the
Reducing the share of tax
share of non-tax

Graphic 2. Trend in share tax revenue of total income during 2000
Sour ce
The tax revenue structure in Romania is characteriz ed by relatively high share of indirect taxes
revenues in comparison with another European Union states, where the share of revenues from
direct, indirect taxes and social contribution is r elatively close.
fluctuate between 20% and 30% of fiscal revenue in the
with the share of tax revenues from indirect taxes ranging between 65% and 80%.
strictly period 2007- 2009, we can observ that the
downward trend from 67.5% in 2007 to 65.1% in 2009.
taxes change in 2010, when an increase of almost 10 percent
This development is due to austerity measures adopt ed by the Romanian government among
indirect taxes in response to IMF condition
gradually increasing excise.

Graphic 3. The share of direct tax and indirect tax revenue to the formation of tax revenues
Source: Ministry of Finance
70% 80 2000 2002 2004 2006 2008 2010 %Total Revenues
02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 %Total Revenues
Direct taxes(%)
405
share tax revenue of total income during 2000 -2010

ce : Ministry of Finance- www.mfinante.ro

The tax revenue structure in Romania is characteriz ed by relatively high share of indirect taxes
with another European Union states, where the share of revenues from
direct, indirect taxes and social contribution is r elatively close. Although the share of direct taxes
fluctuate between 20% and 30% of fiscal revenue in the reviwed period, it is lower i n comparison
with the share of tax revenues from indirect taxes ranging between 65% and 80%.
2009, we can observ that the revenue from indirect taxes knows slightly
downward trend from 67.5% in 2007 to 65.1% in 2009. The orientation of r evenue from indirect
taxes change in 2010, when an increase of almost 10 percent record compared with 2009.
This development is due to austerity measures adopt ed by the Romanian government among
indirect taxes in response to IMF condition s, namely increase in VAT rate from 19% to 24%,
Graphic 3. The share of direct tax and indirect tax revenue to the formation of tax revenues
2000-2010

Ministry of Finance – www.mfinante.ro 80 % 90% 100%Tax revenues (%)
Total revenues
Social Contributions
(%)Total revenues
Non-tax revenues
(%) Total revenues
Capital revenue (%)
Total revenues
0% 50% 100%27.530.024.921.325.126.030.432.533.134.125.7
72.570.075.178.774.974.069.667.566.165.174.3
Direct taxes(%) Indirect taxes(%) 2010
The tax revenue structure in Romania is characteriz ed by relatively high share of indirect taxes
with another European Union states, where the share of revenues from
Although the share of direct taxes
n comparison
with the share of tax revenues from indirect taxes ranging between 65% and 80%. Analyzing
revenue from indirect taxes knows slightly
evenue from indirect
compared with 2009.
This development is due to austerity measures adopt ed by the Romanian government among
from 19% to 24%,
Graphic 3. The share of direct tax and indirect tax revenue to the formation of tax revenues

406 Analyzing the main categories of sources of revenue : income tax, VAT, excise duties and social
contributions can be seen that the largest share is held by value added tax, culminating in 2006
recorded values (8.05% of GDP), 2007 (7.5% of GDP) and 2008 (7.9% of GDP). There then
follows a collapse in 2008-2009 of VAT receipts. Th en follows a collapse in 2008-2009 of VAT
receipts. Since 2010, the revenues from VAT has re sumed the ascendant trend as a result to
measures taken by the government: the increase in V AT from 19% to 24% by OUG 58/2010 to
achieve a balance between revenues and expenditures , where the income were strongly affected
by the financial crisis. Government has taken this measure to increase the VAT rate to achieve
the objectives of fiscal policy commitments agreed in the bilateral funding agreements concluded
with the International Monetary Fund, the World Ban k and European Commission. In
comparison with the revenues from value added tax, excise revenues are not aware such
asymmetric developments in the analyzed period. A s light decrease in revenue from excise duty
in 2008 with slight recovery observed in 2009. The slight increase in excise revenue due to the
increase of excise duty applied on 1 January 2010 f or cigarettes, electricity, heat and gas, to
achieve the minimum level required by Community leg islation, the increase of the average rate
RON / EURO considered at the computation of excise for 2010 and increase the amount of duty
on some products. In order to study the impact of f iscal changes on the macroeconomic indicators
we can say that measures to increase the rate of VA T and excise duty levels had a negative direct
effect of inflation growth in Romania. As regards d irect taxes there are high differences among
the income taxes, a decrease of approximately 3% of GDP in 2009 compared with 2008. Since
may 2008, receipts from corporate income tax record ed a slight decrease. Decreasing receipt
from direct taxes is determined mainly by decline o f household income and the level of profits as
a result of financial crisis. Measures taken by the Romanian government in order to income tax to
restore the balance between revenues and public spe nding was temporary introduction of the
minimum tax in April 2009. From the analysis of cha nges in tax receipts we can observe that the
measure do not provided higher receipts from this s ource, the effect was rather gap mitigation.
Social benefits also know a slightly downward trend . The share of social contributions to GDP is
steadily falling since 2006. This development is th e result of gradually implementation of pension
pillar II, which involves targeting gradual shares of social security contribution rate by a private
pension fund to invest. Gradually implementation of the pension pillar II is achieved by
increasing the share of social contributions redire cted from 2.5% to 3% in 2010. In order to
restore balance in the public pension system have b een adopted reforming measures which
include: raising the standard retirement age, incre asing the number of those taxpayers with
income from professional services, managers, discou raging the number of early retirement, early
partial and unfair disability retirement, the expan sion base for social contributions.
Overall we conclude that the financial crisis effe cts have been evident since the end of 2008,
resulted in a strong decline are the main sources o f financing state budget.

Graphic 4. Evolution of the main sources of financi ng state budget 2000
Source
In ter ms of economic contraction and the budget deficit f inancing needs in 2008 (5.7% of GDP),
Romania's public debt increased. The optimal soluti on for financing,the high deficit and debt
refinancing, respectively to achieve the objective of financial stability
contracting of public debt from the International M onetary Fund( Mara Eugenia Ramona, Inceu
Adrian, Cuceu Ionu ț, Achim Monica Violeta 2005: 5). Increasing public debt growth is due
mainly by the increasing of government debt, local deb
government debt shows that public debt contracted d irectly by the state is about 90% of the total
public debt and debt guaranteed by the state govern ment is about 10% of the total.
situa ția macroeconomic ă pent ru anul 2009
the public debt by the currencies in 2010, we can o bserve
Euro (44.1%), followed by national
total debt government. High share
domestic and foreign. Romania's public
reaching the 2010 level of 30.8 %
Maastricht Treaty of 60% of GDP.
Graphic 5. Evolution of public debt and budget defi cit 2001 0123456789
2000
2001
2002
2003
2004 %GDP
-10.0-5.00.05.010.015.020.025.030.035.0
2001 2002 %GDP
407

Graphic 4. Evolution of the main sources of financi ng state budget 2000 -2010
Source : Ministry of Finance- www.mfinante.ro
ms of economic contraction and the budget deficit f inancing needs in 2008 (5.7% of GDP),
Romania's public debt increased. The optimal soluti on for financing,the high deficit and debt
refinancing, respectively to achieve the objective of financial stability of the economy was
contracting of public debt from the International M onetary Fund( Mara Eugenia Ramona, Inceu
, Achim Monica Violeta 2005: 5). Increasing public debt growth is due
mainly by the increasing of government debt, local deb t remained constant. The structure of
government debt shows that public debt contracted d irectly by the state is about 90% of the total
public debt and debt guaranteed by the state govern ment is about 10% of the total.
ru anul 2009 și proiec ția acesteia pe anii 2010 -2012 : 30). Analyzing
the public debt by the currencies in 2010, we can o bserve the most important component is the
national currency (43.5%), while other currencies have only 12.4% o
share of debt in euros due to the hiring of loans in euro
Romania's public debt has increased significantly in the last
% of GDP, which is well below the ceiling imposed
Graphic 5. Evolution of public debt and budget defi cit 2001 -2010

Source: Eurostat 2004
2005
2006
2007
2008
2009
2010 Corporate tax/GDP
Income Tax/GDP
VAT/GDP
Excise/GDP
Social Cotribution/GDP
2002 2003 2004 2005 2006 2007 2008 2009 2010
Budget deficit Public debt 2010

ms of economic contraction and the budget deficit f inancing needs in 2008 (5.7% of GDP),
Romania's public debt increased. The optimal soluti on for financing,the high deficit and debt
of the economy was
contracting of public debt from the International M onetary Fund( Mara Eugenia Ramona, Inceu
, Achim Monica Violeta 2005: 5). Increasing public debt growth is due
t remained constant. The structure of
government debt shows that public debt contracted d irectly by the state is about 90% of the total
public debt and debt guaranteed by the state govern ment is about 10% of the total. ( privind
: 30). Analyzing
the most important component is the
currency (43.5%), while other currencies have only 12.4% o f
in euro , both
the last two years,
imposed by the Corporate tax/GDP
Social Cotribution/GDP

408 III. Conclusions
Through the financing agreements concluded with the IMF and the European Commission, the
Romanian government has asumed an adjustment progra m to reduce the general government
deficit at 4.4% of GDP for 2011 of 3% in 2012, and most adjustment measures are already in
force. This further implies keeping under control p ublic spending and the elimination of
discretionary fiscal policy measures affecting the revenues.
In conclusion we can say that Romania's fiscal poli cy should remain a conservative, restrictive
towards the goal of fiscal consolidation.

References:
1. Consiliul Fiscal, “Raport anual: Evolu ții și perspective macroeconomice și bugetare ”, martie
2011
2. Dobrot ă N., “ Dic ționar de Economie” , Editura Economic ă, Bucure ști, 1999, p. 354 1
3. Mara Eugenia Ramona, Inceu Adrian, Cuceu Ionu ț, Achim Monica Violeta, “ The impact of
economic crisis on the fiscal revenues”, The Journa l of the Faculty of Economics – Economic-
Volum 3, Oradea, 2009
4. Ministerul de Finan țe, “Raportul la proiectul Legii bugetului de stat pent ru anul 2011 și
orizontul 2012-2014”
5.“ Raport privind situa ția macroeconomic ă pentru anul 2009 și proiec ția acesteia pe anii 2010-
2012”
6. Tulai, C., „ Finan țe”, Editura Casa C ărții de Știin ță , Cluj-Napoca, 2007