Romania's current political majority leader Liviu Dragnea and former technocrat Prime Minister Dacian Ciolos have clashed in the past days over an alleged RON 10 billion "hole" in the state budget for 2016. The Ciolos cabinet managed to close 2016 with a lower budget deficit than the one included in the budget program approved at the beginning of last year, but Dragnea is unhappy that the state's revenues in 2016 were lower than the ones initially estimated, giving his party, which recently took the power, a lower base to start from in the budget for this year, which translates into lower potential revenues to cover for the generous promises in the electoral campaign.

After Social-Democratic Party (PSD) president Liviu Dragnea said on Sunday that “it was very likely” that an investigative parliamentary committee would be established to check the decisions of the Finance Ministry concerning the latest budget amendment, the former PM Dacian Cioloş reacted on Monday, arguing that the PSD is covering up its electoral promises with “diversions and propaganda,” mediafax.ro reports.

The PSD leader and Chamber of Deputies president had previously asked finance minister Viorel Stefan to start a “very tough” internal investigation to understand why the Ciolos government said that it made a positive budget amendment, but collected RON 10 billion less than initially planned last year.

Dragnea said on Sunday evening that the former PM, former finance minister Anca Dragu, former European Funds minister, the head of the tax authority ANAF, and the president of the Fiscal Council should explain the budget adjustment of November 2016.

“They made an estimate on paper, based probably on some written commitments from some deciding parties, that revenues in Romania at the end of 2016 will increase by almost [RON] 3 billion . So they made a positive adjustment. This happened sometime on November 23. December 31 shows us that revenues are [RON] 10 or 14 billion lower, I will have all the data in the morning. This is totally illegal. Whoever lied about this data, which never happened before in Romania, will have to pay,” Dragnea said at Romania TV, quoted by mediafax.ro. “We are in a situation where Romania’s 2017 budget has a RON 10 billion hole, which we will cover, but which could have been used on other good things we could have done,” Dragnea said.

Former PM Cioloş reacted to Dragnea’s comments saying such a “hole” does not exist. “Probably confronted with some figures and realities of the Romanian economy that I’ve been mentioning for the past months, aware that he doesn’t know how to get out of trouble and cover financially the promises made during the electoral campaign, Mr. Liviu Dragnea performs a trick and announces that he allegedly found, I quote, ‘a RON 10 billion hole in the budget’. To anyone with basic economic knowledge, such a ‘hole’ would have entailed either smaller revenues or higher expenses that those forecast and, anyway, they should have been found in the budget adjustment – which is not the case. This ‘hole’ does not exist,” Cioloş wrote on his Facebook page.

Cioloş said that 2016 revenues were higher than 2015 ones, and the final deficit was below the one forecast and approved by the Parliament in last year’s budget. “In December we reimbursed companies a VAT worth RON 2.1 billion, without leaving any pressure on next year’s budget, as is customary, precisely to lessen the burden of the new government. The rest is tales. Besides, there is a different budget in 2017. Mr. Dragnea cannot blame last year’s budget if he cannot fulfill his electoral promises this year,” the former PM said.

At the same time, former Finance Minister Anca Dragu told hotnews.ro that if such a RON 10 billion ‘hole’ existed, the budget deficit would have stood at 4.1% of the GDP, not 2.59%.

“The budget deficit stands at 2.59% of the GDP compared to 2.8%, the target we had at the beginning of the year. This means we do not have a RON 10 billion hole. If such a hole existed, it would have translated by an additional 1.3% deficit, and we would have ended the year with a 4.1% [deficit]. Let’s not forget that Romania’s budgets are verified and monitored by the European Commission. Romania’s budget all the more so, as we are a state in a post-program monitoring period up to around 2018,” Dragu told hotnews.ro.

According to data from the Finance Ministry, Romania ended the first eleven months of 2016 with a RON 5.5 billion deficit, or 0.73% of the GDP.

So why does Liviu Dragnea continue to mention the RON 10 million hole? As Ziarul Financiar explains it, the "hole" doesn't come from the fact that the previous government spent way more than it cashed in but from the fact that it failed to reach the estimated budget revenues for 2016. The state's revenues totaled RON 221.5 billion in 2016, RON 14 billion less than the revenues indicated in the budget amendment in November 2016, of RON 235.7 billion, according to sources close to the Finance Ministry quoted by ZF. The revenues were also lower than in 2015, according to the same sources.

Meanwhile, PSD was counting that the budget revenues would reach RON 253 billion in 2017, which is the level on which they based their governing program that includes salary and pension increases and tax cuts. To reach this level, the new Government should increase budget revenues by some 14% this year.

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editor@romania-insider.com