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Such a measure, with a significant impact on budget construction for 2021, must be included in a medium-term fiscal-budgetary framework, according to the Fiscal Council (CF). The institution considers, in a statement on its opinion on the second rectification of the consolidated general budget for 2020, that a rules-based approach to the indexation of pensions (otherwise provided by law) would bring benefits. multiple from the perspective of the stability of the pension system and anchoring the expectations of the participants, fiscal sustainability and budget programming.
“The increase in budget spending on pensions cannot ignore the situation of BGC (consolidated general budget – no.), Whose primary and structural deficit is currently at very high levels, which requires the beginning of a correction process, the gap with the threshold of being significant 3% of GDP established by the excessive deficit procedure ”, says CF.
In the document, the Fiscal Council indicates that it addressed the issue of applying the new Pensions Law from the perspective of its budgetary impact on several occasions in its previous opinions. In its version prior to the second rectification, the law provided for a 40% increase in the pension point as of September 1, 2020, which led to an increase in the GDP share of the aggregate of “social assistance” in more than 2 percentage points at the 2021 level.
Although the increase in pensions is obviously a valid objective, the FC warned about the incompatibility of said increase with the desire to ensure fiscal / budgetary discipline, respectively reducing the budget deficit below 3% of GDP and then to the level described by the medium-term objective, the creation of macroeconomic conditions prior to joining the euro area; significant deterioration in the position of public finances, especially in the medium term; the destabilizing effect on the national economy; and thus and considered it necessary to reconsider the calendar of application of the new pension law. The government decided on the occasion of the second budget rectification a 14% increase in the pension point, which implies a significant budgetary effort, of 3,600 million lei in 2020 and 10,920 million lei in 2021, respectively. This measure leads to maintaining the participation in GDP of pension spending in 2021 at the level of the current year, admitting the forecast of economic growth of the CNSP for next year and without other subsequent increases ”, explains the document of the Fiscal Council.
Thus, compared to the previous version of the law, this decision implies lower budgetary expenditures by 6.8 billion lei in 2020 and 20.3 billion lei in 2021, limiting the sharp deterioration of the budget deficit.
“More specifically, if the pension point had increased by 40%, pension spending as a percentage of GDP would have been higher by 0.6% of GDP in 2020 and by 1.8% of GDP in 2021 in compared to the current situation described by a 14% increase in the pension point. Although the reduction in pressure on the fiscal outlook is hidden at the 2020 level due to the shorter implementation period, as well as other measures adopted, the This measure contributes, therefore, to the prospect of lower fiscal-budgetary imbalances in 2021 compared to the situation in which it would have occurred. It maintained the increase in the pension point by 40% “, it is also shown in the CF statement.
In relation to the recent decision to increase the pension point, the Fiscal Council makes the following assessments: it was necessary to reconsider the implementation schedule from the perspective of the sustainability of public finances and the reduction of pressure on the sovereign rating; Normally, such a measure that has a significant impact on the construction of the budget for 2021 should be included in a medium-term fiscal budget framework. Both the timing of this decision (two weeks before implementation) and the discretionary approach to the percentage increase highlight the ad-hoc nature of fiscal policy decisions and poor budget planning.
The FC also considers that a rules-based approach to the indexation of pensions (otherwise provided by law) would bring multiple benefits in terms of stability of the pension system and anchoring the expectations of participants, fiscal sustainability and programming. budgetary.
“The increase in budgetary spending on pensions cannot ignore the situation of the Consolidated General Budget (BGC), whose primary and structural deficit is currently at very high levels, which obviously requires the beginning of a correction process, the gap with the threshold of Being significant 3% of GDP established by the excessive deficit procedure. In such a context, the implementation of measures to increase permanent expenses will subsequently imply the adoption of additional corrective measures of an equivalent size ”, says CF.
Another discretionary measure, says CF, that affects the aggregate of “social assistance” adopted as a result of the second budget correction was the increase in child allowances by 20% as of August 1, followed by successive increases until August 1 July 2022, ensuring at that time the doubling compared to the 2019 level.
“This measure implies higher annual expenditures by around 7 billion lei after July 1, 2022, the budget impact for 2020 is about 0.4 billion lei and for 2021 around 3 billion lei. Also in this case, the arguments made by the CF about the increase in permanent expenses with pensions are valid.
In addition to the above, CF also highlights the risks for BGC’s position derived from a possible change in the decision on the percentage increase in permanent expenses included in the previously analyzed ‘social assistance’ aggregate. CF reiterates the importance of taking into account the extremely complicated situation of BGC, as well as the fact that any further increase in permanent expenses will imply equivalent corrective measures as an impact on BGC during the period of budget consolidation, ”the document also notes.
