VZCZCXRO7693
OO RUEHIK
DE RUEHBM #0868/01 3640550
ZNR UUUUU ZZH
O 300550Z DEC 09
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0209
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHINGTON DC

UNCLAS SECTION 01 OF 02 BUCHAREST 000868 
 
STATE FOR EUR/NCE - ASCHEIBE, EB/IFD 
STATE PASS USTR - LISA ERRION 
TREASURY FOR BAKER 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/CEEB/BURGESS/KIMBALL 
STATE PASS USAID 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EIND EFIN RO
SUBJECT: GOR APPROVES 2010 BUDGET DRAFT, EASY PARLIAMENT VOTE 
EXPECTED 
 
BUCHAREST 00000868  001.2 OF 002 
 
 
¶1.  (SBU) On December 23, the new Boc Cabinet approved the 2010 
draft budget for submission to Parliament for debate and approval. 
Parliament, under the new ruling coalition of PD-L, UDMR, other 
ethnic minorities, and a recently formed group of "independents", 
will likely pass the proposal in January with only minor amendments. 
 The government based the 2010 budget plan on the following 
assumptions: 1.3% economic growth, 3.7% inflation, 4.25 RON/Euro 
average forex rate, and a consolidated budget deficit at 5.9% of the 
GDP. 
 
¶2.  (SBU) The government plan incorporates a series of extremely 
ambitious expectations.  Consolidated budget revenues have been 
programmed to reach 168.8 billion RON or 31.3% of the GDP.  This 
represents an 8.7% increase over anticipated revenues for 2009-an 
extremely bold target, considering the negative economic growth 
trend this year.  Profit tax collection has been programmed to 
increase 5.2% against 2009 expectations, which is again inconsistent 
with the current economy's harsh reality.  The budget reflects a 
4.1% increase in income revenues notwithstanding higher unemployment 
and public sector income constraints.  VAT revenues are programmed 
to remain the largest single source of income, growing 5.1% despite 
the retail sector's obvious cool off.  The proposed budget assumes 
that excise taxes will rise 17.9%, a slightly more realistic growth 
rate in light of the EC harmonization process.  Finally, payroll tax 
revenues are calculated to increase 3.7%.  The GOR budget does not 
include any change to basic VAT, flat, or payroll tax rates in 2010. 
 In fact, the Boc cabinet has proposed a social security tax holiday 
as an incentive for employers to hire the jobless.  The details, 
including start date and duration, have yet to be determined. 
 
¶3.  (SBU) Consolidated budget expenditures have been projected at 
200.75 billion RON (37.2% of the GDP), up 4.6% from the revised 2009 
budget.  Programmed expenditures for goods and services in 2010 are 
down 2.1% from the 2009 revised program, while interest expenditures 
are set to jump 43.6% due to higher and more expensive public debt 
costs.  Personnel expenditures are expected to drop 1.6% in 2010, a 
minimal decrease considering the hype generated by the government's 
focus on public sector labor costs.  The GOR has promised to freeze 
government employees' real wages; specifically, it intends to limit 
any wage increase to cover inflation and, in the cases of 
state-owned companies, to grant wage hikes only for companies that 
posted profits in 2009.  Additionally, significant employment 
benefits will be eliminated in 2010.  The GOR will stop giving 
employees tax-deductible lunch and holiday tickets.  Lunch tickets 
account for about USD 180 million, out of approximately USD 214 
million for all tickets in the public sector.  The abolition of the 
government employees' holiday tickets comes less than 12 months 
after the same Prime Minister and tourism minister launched the 
program for the first time.  The 2010 budget also stipulates that 
funds allocated for co-financing post-accession external grants can 
no longer be transferred between ministries or other public 
authorities.  Finally, any salary increases awarded in courts will 
not be paid during the first half of 2010. 
 
 
¶4.  (SBU) The ministries receiving the highest allocation of funds 
in the proposed 2010 budget are: Ministry of Labor with 4.4% of the 
GDP (compared to 2.8% in 2009); Ministry of Education, which will 
take over the Ministry of Youth and Sports, with 2.7% of the GDP, up 
from 2.1% in 2009; Ministry of Transportation with 2% of the GDP 
against 1.8% in 2009; Ministry of Interior and Public Administration 
with 1.96% of the GDP, compared to 1.7% in 2009; and Ministry of 
Agriculture with 1.7% of the GDP against 1.5% in 2009.  The Ministry 
of National Defense's budget will hold steady at 1.3% of the GDP and 
the Ministry of Health will see a modest increase from .7% of the 
GDP in 2009 to 0.76% in 2010.  Many government entities will see 
dramatic increases over 2009.  Among the most significant are: the 
Government General Secretariat (up 103.7% from 2009), which will be 
assuming responsibility for religious organizations previously under 
the jurisdiction of the Ministry of Culture; Constitutional Court 
(up 59% from 2009), Special Telecommunications Service (up 39.8%), 
Ministry of Economy (up 38.7%), Ministry of Justice (up 31.6%), 
General Prosecutor's Office (up 30.8%), Ministry of Foreign Affairs 
(up 15.2%), Ministry of Communications (up 8.5%), Supreme Court (up 
8.3%), Ministry of Labor (up 5.2%), and the Presidency (up 4.6%). 
Among the most draconian budget cuts compared to the 2009 budget are 
those for: Ministry of Culture (down 31.1%), Ministry of Environment 
(down 27.3%), Ministry of Finance (down 24.1%), Chamber of Deputies 
(down 16.5%), Senate (down 10.7%), and Audit Court (down 6%). 
 
¶5.  (SBU) COMMENT.  The proposed 2010 budget legislative package 
lacks major structural changes.  The program is built on optimistic 
assumptions, leaving a lax fiscal deficit largely untouched.  This 
seems to be a paradox, given the generous, flexible IMF-led 
 
BUCHAREST 00000868  002.2 OF 002 
 
 
financial package from the IFOs and the close supervision of the IMF 
technical missions over the 2009 budget adjustments and 2010 
planning.  The Parliament may pass minor amendments in January, but 
the GOR's budget draft will likely pass largely intact, due to the 
ruling coalition's desire to draw as much as possible from the IMF 
loan as quickly as possible.  For 2010, the two critical factors to 
watch will be: how much of the IFOs' installments will be channeled 
toward the economy versus public sector wages and social assistance; 
and how will Romania's central bank maintain its independence, faced 
with increasing pressures to relax key interest rates and the 
perpetual necessity to defend price stability. 
 
 
GITENSTEIN