FinMin Citu: Deficit to reach 5pct once with the increase of allowances and VAT cut

The budgetary deficit would reach 5 per cent of the Gross Domestic Product (GDP) next year, if the measures voted by the MPs on Tuesday regarding the VAT cut and the increase of the child allowances were applied, said the Minister of Finance, Florin Citu.

"The impact of the allowance increase would be of 6 billion lei and that of the VAT cut of 11.8 billion lei. This means that the deficit could reach 4.3 per cent of the GDP only after the increase in the allowance, and close to 5 per cent when adding the VAT cut. The political class plays with fire in Romania today and this is not hurting me or the National Liberal Party (PNL). This is hurting Romania, for what happened today in the Romanian Parliament is also seen on the international markets, and if something happens with the financing costs of Romania this will be only the fault of those irresponsible people who are trying setting the country afire," Florin City told Digi 24 private television broadcaster on Tuesday evening.

He believes that, in the next days, we will see pressure put on the exchange rate and interest rates, for the international markets reacted already on Tuesday to the measures voted by the MPs and they warned, in this context, that the greater risk for Romania in 2020 is not the fiscal policy, but the political instability.

The legislative proposal regarding the cut of the standard VAT rate from 19 per cent to 16 per cent from January 1, 2020, received on Tuesday a favourable report from the Committee on Budget - Finance of the Chamber of Deputies. The project brings changes to the Fiscal Code and provides, in addition to reducing the VAT, from 19 per cent to 16 per cent, extending the application of the slashed VATof 5 per cent, compared to the reduced rate of 9 per cent, for the "delivery of food for human consumption". And animal, livestock and poultry from domestic species, seeds, plants and ingredients used in food preparation, products used to supplement or replace food."

Although the initiative belonged to the PNL MPs, during the debates, social democrats advocated for its adoption, while the Liberals wanted a more substantiated point of view from the Government. However, the proposal of Nicolae Neagu (PNL) regarding the postponement of the debate was rejected.

The project was adopted by the Senate on October 21, and the Chamber of Deputies is the decision-maker.

Also on Tuesday, an amendment adopted by the Labour Committee of the Chamber of Deputies provides for doubling the amount of child allowances, which could reach 300 lei.

At the same time, based on the proposal made by Adrian Solomon (PSD - Social Democratic Party), the allowance for children with disabilities would be 600 lei.

The project is to be put to the vote in the plenary sitting of the Chamber of Deputies.

The budget project for next year is built on a budget deficit of 3.59 per cent of GDP.