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Thursday, 10 December 2015

General principles and objectives of the Budget for 2016

The macroeconomic framework


The budget for 2016 started from a macroeconomic rigorous model, which provided the budgetary construction framework. The GDP growth by 4, 1 percent on 2016, assumed as  the basis for the budget figures, is not only the result of internal reviews of the Government, but has been validated through several rounds of discussions with the European Commission. Sources of growth remain exports and consumption, coupled with investment in growth, driven by the recent fiscal relaxation too. A number of macroeconomic risks have been taken into budget modeling exercise, so that we are not talking of an optimistic scenario, but one conservative and realistic.

The budget construction – determinants

Solutions, not excuses: a budget oriented towards bridging the gap with Europe

The budget construction was conducted under a set of important constraints imposed by legislation adopted by the Romanian Parliament in 2015, which led to increased budget spending by approx. 12.6 billion lei. There were opinions that the Government should have rejected these determinants with budget slippage potential. Eventually through Government Emergency Order. This Government observes the state powers balance, leaving the legislative prerogative to the elected Parliament, as it is natural, and on the other hand, it undertakes a courageous and wise mandate in the attempt to finding balance solutions in this given framework. We focus on finding solutions, not excuses that we had no other alternatives. At the same time, the budget was built taking into account the maximum deficit ceiling of 3 percent, set at the EU level, which shows in fact the observance of rules at European level.

 Regarding Medium -Term Budgetary Objectives (MTO), the Government is firmly decided to create during 2016 the premises for realigning the structural deficit to the targets so that in the medium term, Romania to be in line with agreed lines (1% structural deficit). Moreover, an important number of EU Member States have a similar policy, in which they announced the gradual inclusion of MTO  targets. And Romania needs a budgetary fiscal room to overtake the rest of the European Union.


The budget Implementation - basic principles


The Government is considering five basic principles in budget implementation: prioritization, transparency, efficiency, prudence and predictability.


1. Prioritization. This government focuses resources on projects with real impact, does not start more than it can finish. The approach envisaged did not necessarily depend on allocation ceilings at ministerial level or area of ​​intervention, but rather on how spending is prioritized, in particular those aimed at investments, within the allocations. Pragmatically, we aimed at avoiding squandering resources in a "shopping list" by focusing on a limited number of priority projects, leading to concrete results.

2. Increased transparency. Government and line ministries will publish public procurement contracts to avoid suspicions about the allocation of public money. In this way, we build a relationship of trust with citizens. First, it is their budget. Transparency implies more open reporting of budget execution so that any citizen can follow what happens to the budgetary resources, both on revenues and expenditure.

3. Efficiency in budget implementation is a key condition for people to understand why it is worthwhile to collect revenues at the state level. Romania has many small budgets and many development needs, but it also squanders the few resources it has. Eliminating waste in the public sector is a key priority of the Government and closely related to public administration reform, which has already been announced.

4. Prudence is another crucial factor in the management of the 2016 budget. With a forecast deficit of 2.95%, it is clear that we must be extremely cautious in order to avoid slippages. The Government has set a ceiling of blocking public spending on goods and services 10% (approx. 4 billion lei) as a buffer to prevent slippage. In addition, the Government is counting on a reserve of revenues increments which occur naturally as a result of second-round effects of fiscal relaxation (money remaining in private circuit and multiplying). It is good that these effects were not taken into account in the budget construction, in order to take a more cautious approach in implementation.

5. Predictability and stability are key principles that the Government will consider to increase private sector confidence and stimulate investment. The Government will respect the fiscal responsibility law and will consider only two rectifications, as required under law.


The budget construction - the new Government’s policy

Despite the limitations of this budget construction, the Government has largely succeeded in reflecting in the new budget the key priorities it has announced and which it will put into practice next year. Healthcare and education are our priorities. They are vital to our self-esteem as a nation.

In this respect, compared to the estimated final budget implementation in 2015, there will be higher allocations to health (+3.1 bn. Lei), education (+2.3 bn. Lei) and research (508 mil. Lei ). Besides increasing the budget for education, almost 10%, the Government will allocate to local authorities an additional 1 billion lei for the rehabilitation of schools, given that in many cases the pre-university infrastructure is still precarious. On the other hand, investment in research, increased by approx. 23% in 2016, is a precondition for sustainable economic growth. Without exception, all nations that have invested in research have become more prosperous.


Education - a better and more accessible school and spurring innovation

In terms of education policy, we want a more modern and accessible school. Good schools should be for all, and we think especially to rural children. Government has prioritized the generation of specific projects to increase access to education, especially in rural areas. At the same time, the Government emphasizes the quality and performance of education as a critical base for human capital development in Romanian society.


Four of initiatives that give personality to this budget, on its priority lines in education are:


- Universities to European standards and strengthening the autonomy - improving the participation and effectiveness of higher education by allocating 2.23 bln. lei for 48 universities, involving 58. 495 teaching staff, support staff, providing subsidies to hostels and canteens (141.6 mil. Lei), 103. 105 beneficiary students, scholarships for 73,000 students increased by 20%, increase in core funding by 22%;

- Better and safer schools - rehabilitation and development of infrastructure of schools by allocating 87 million Lei to 234 state pre-university educational institutions, including 174 kindergartens and 67 schools. For the same purpose, it adds to these amounts, rehabilitating 2,000 schools locally through MDRAP budget allocation.

- Access and equity in education – streamlining ROSE project developed with funding from the World Bank, in order to decrease dropout and increase the transition to higher education. 300 high -schools are targeted as beneficiaries of grants nationwide.

- Innovative curricula and teaching career - will apply for the first time, new mechanisms for public consultation and piloting for grades V and IX, using funding from the World Bank and EU nonrefundable funds.

In terms of investment objectives related to research, development and innovation, the budget for 2016 envisages continued investments dedicated to the project of European importance ELI-NP in Magurele (396.2 mil. Lei, non-refundable funds), which will lead to completion of construction and installation of key equipment provided in this project. It is noteworthy the development of the concept of integrated territorial development Laser Valley - The Land of Lights around the facility pennant in Magurele, which thus becomes a key vector in generating splillovers locally, but also nationally and internationally.


Health - improving healthcare services


Government’s priorities in healthcare are directly linked to increased quality of care. These are reflected in the budget for 2016 by continuing ongoing projects and programs, and also extending special attention to newly emerging national programs:

• Launch of National Program for Burns with a share of approx. 10% of the total allocations for national programs, doubled by an agreement with the World Bank, whereby there will be set up four burn centers (Iasi, Targu Mures, Timisoara, Bucharest);

• Introducing a new Subprogram within the National Oncology Programme: Pediatric Oncology, with a preliminary allocation of approx. 2% of the total budget of the programs.

• Developing programs for mother and child, by prioritizing healthcare dedicated to premature newborn in 2016. It envisages modernization of neonatal intensive care units, by allocating at least 3% of the programs budget.

Regarding the continuation of initiatives already under way, there will be accelerated the construction of three regional hospitals in Cluj, Iasi, Craiova, for which ERDF non-refundable funds worth 320 mln. EUR are allocated.

As a general strategy, allocation for 2016 attempts to better establish the premises for redefining the status of medical personnel in society and for improving the population health in the medium and long term.


Transport - from words to deeds


The Government's priority in terms of transport infrastructure is to accelerate the implementation of projects approved in the General Transport Master Plan. This includes emergency release of all preconditions for starting the projects which are not started (e.g. Expropriations, studies, contracts) and implementation of the following projects with funding allocated for 2016, which are under implementation or ready to be launched:


Nr. Crt. , Project Name,  Value mil. Lei:

1. Highway  Lugoj - Deva 348

2. Highway Sebes - Turda 247

3. Highway Cp.Turzii - Ogra - Tg.Mureş 230

4. Transylvania Motorway 449.8

     Grand Total 1274.8

Nr. Crt., Project Name, Value mil. Lei:

1. Modernization of Sighisoara - Coşlariu -  Simeria Railway -542

2. Modernization Railway km. 614 - Gurasada -  Simeria -348

3. Modernization of railway Brasov – Sighisoara- 887

     Grand Total -1777

Nr. Crt., Project Name,Value mil. Lei:

1. Line M5: Drumul Taberei – Eroilor (11.5 km tunnel + 10 stations)- 588

2. Line M4: Parc Bazilescu - Străuleşti (2.1 km tunnel + 2 stops) 270

3. Line M6: 1 Mai - Henri Coanda Airport *

    Grand Total 858

     Total transport infrastructure 3909.8

 * M6 metro line project will be introduced in the budget, on the first rectification, according to the deadlines for the public procurement process completion

The budget allocation for transport infrastructure projects will be supplemented by a mechanism already agreed with the Ministry of Finance, depending on the pace of progress of the works. Thus, the Government has ensured that under overtaken works or a faster pace of implementation, there will be funds available to avoid financial bottlenecks.


Defence - priority in a difficult global security context


The Government's priority in the field of national defence and security is to observe the obligations arising from membership of NATO, the EU and the strategic partnerships to which Romania is part. There are troubled times close to our borders. The Government undertakes the decision of the Supreme National Defence Council of gradual increase of defence budget to 2% by 2017 - our promise as a country when we joined NATO. Romania is a country that honors its promises, both to its citizens and its partners. Therefore, it will now earmark additional amounts to the defence budget (1,3 bn. lei).

Investment in local development - depoliticisation and objectification of funding

A key element of Government policy is generally boosting public investment as a factor for economic growth and development. Compared to the estimated budget execution in 2015, when investments failed to exceed 4.7% of GDP, mainly for reasons of lack of funded projects, for 2016, allocation is 5.1%, based on increased capacity of boosting the relevant projects, meant to ensure full implementation of this important budget line.

Note that in addition to the above mentioned increments, this budget succeeds in setting higher ambitions in the area of ​​local development, where investment allocation is significantly higher (+2 bn. RON) compared to budgetary limits outlined as proposal by the former Government. This approach represents in fact the current Government's intention not to have two Romania, not to leave behind anyone, but to combine smart economic growth with social cohesion to make us feel members of the same community. Therefore, we have a policy, and a budget that tries to unite, not to divide.

Beyond that, differentiator in the current Government’s policy and at the same time the commitment it undertakes is objective prioritization of the investment projects, based on analyses conducted together with the World Bank in the last two years and the criteria established for this.

Funds will arrive there where they are necessary, to those persons who really need them. Needs are known, are well outlined in the mentioned analyses and it is known the obligation” to do more with less”. This is why; a fair, pragmatic and transparent substantiation will underline all projects funded from state budget.


Budget for 2016 – of Romania, and not of Government

The budget is built on the idea that the state will provide a set of public goods and services that will create the prerequisites for development to which, the private sector and citizens to join and contribute. Eventually, the state, through the budget provided by taxpayers, can only boost growth but cannot replace the private sector, which generates this growth.

It is important to note that a basic premise of the budget construction is the openness and determination of the current Government to better collaborate with the private sector.

It is vital that the private sector be in solidarity with the 2016 budget exercise, maybe the first time in Romanian society after 1989. Eventually, by observing the recently approved Fiscal Code and related tax reductions (VAT, dividends etc.), the Government allowed the private sector to manage amounts of approx. 10.2 bn. Lei, which represents the equivalent of fiscal relaxation. This Government does not see the private sector as an inert mass of taxpayers, but has confidence in the business and entrepreneurial environment’s ability to mobilize for building a coherent country project.

Similarly, citizens need to see the public budget as a limited resource, to which they contributed with confidence to have a better country. Budget money is not money of the Government or any Minister. The budget money represents the contributions to be valued and used wisely, for the common interest of society. Therefore, the Government must not only be a good manager, but all Romanians need to think about how they can spare the waste of resources.


Consultation and transparency


Lately, in the tight deadline from investiture up to date required by Parliament for receiving the draft budget for 2016, the Government created a framework for consultation with citizens and civil society through the newly-created Ministry for Consultation Public and Civic Dialogue. Over 150 citizens, NGOs, private companies and even representatives of local government submitted very diverse opinions and views on the budget and beyond. The suggestions were carefully analyzed, and the pertinent ones were taken into account by the Government in the discussions preliminary to budget adoption. Other views were mostly kept as useful reflections for the development directions of Romania in the future.

This consultation process obviously to be improved under the organizational aspect is in line with the wish already expressed by the Government, to stimulate the interest of citizens for the Budget, and not to lose contact with society through isolation in an ivory tower.

 Răspundem cetăţenilor


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