Commission Report 2002 (Romania)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 29: Financial and budgetary provisions

Progress since the last Regular Report

Romania has made progress in this area since the last Regular Report.

Further progress has been achieved through the adoption of a new Public Finance Law which aims at improving national budget formulation and execution, in particular by introducing a three-year programme-based framework for budgetary procedures. This framework ensures improved arrangements for co-financing the EC pre-accession instruments. The new law also continues the process of decentralisation by increasing the range of public services financed out of local budgets. The preparation of the 2002 state budget introduced programme-based budgeting for the main spending ministries for the period 2003-2005. The reform of budgetary procedures and public expenditure management has been accompanied by successful efforts to improve the timeliness of the budgetary process. At the same time, the number of extra-budgetary funds has been reduced to seven, compared with eleven two years ago.

As regards own resources and preparation of the system of contributions to the European Community budget, the Ministry of Public Finance has set up an Office for Special Assessments within the General Division of Public Revenues Management and Monopolies of the Ministry. This unit is responsible for co-ordination between the various services which will be involved in calculating Romania`s contribution to the EC budget and the VAT base, and for ensuring that they are familiarised with the budgetary requirements related to Romania`s accession to the EC.

As regards VAT, consolidated legislation, which entered into force in June 2002, has significantly improved the level of alignment (see chapter 10 ­Taxation).

Overall assessment

The integration of the medium-term financial outlook into the 2002 budgetary process is a positive step in improving the management of public budgetary resources. Efforts should be continued to create the capacity to effectively implement the multi-annual budgetary mechanisms defined in the Public Finance Law, particularly with a view to ensuring co-financing of EC pre-accession instruments. As regards traditional own resources, Romanian customs legislation is already largely in line with the EC acquis and progress has been achieved in alignment with the EC Customs Code and its implementing provisions. However, for the purpose of own resources, Romania needs to develop its reporting system on cases of fraud and irregularity, and certain other reporting and accounting requirements (the ``A` and ``B` accounts) will need to be set up in time for accession. Also, the systems and procedures necessary for sugar levies are not yet in place. Romanian law does not currently include any provisions requiring that producers of sugar, isoglucose or insulin syrup pay levies on sugar production, nor has an entity been identified to carry responsibility for levy collection.

As regards VAT, Romania has achieved a reasonable degree of alignment, although a number of issues remain to be tackled. For the purposes of own resources, considerable efforts are required in order to be able to calculate the weighted average rate in accordance with ESA-95 and to determine the impact on the VAT base of any special arrangements agreed under the Taxation Chapter. Romania should continue to participate in the VAT simulation exercise, which is the key tool for effectively testing its capacity regarding the VAT resource. Sustained efforts are also needed to improve the actual collection of VAT.

As regards the GNP resource, Romania`s statistical system is largely in line. Implementation of the ESA-95 concept should be continued, along with the ongoing process of quality and methodology improvements in the calculation of GNP and the national accounts, including enhancing their exhaustiveness.

Following the establishment of the co-ordination unit on own resources in the Ministry of Public Finance, considerable efforts will be needed to define the necessary procedures, organisational arrangements and capabilities to fulfil the administrative requirements in this area. In addition to the need for central co-ordination for the proper collection, monitoring and payment of funds to and from the EC budget, administrative capacity should be strengthened in the context of the relevant policy areas described elsewhere in this report, such as Financial Control, Agriculture, Customs, Taxation and Regional Policy.

Conclusion

In its 1997 Opinion, the Commission concluded that, in order to ensure that own resources could be established, monitored and made available in line with Community regulations, Romania would have to overhaul its current customs system. In addition, for the purpose of accurately calculating the GNP resource considerable improvements would have to be made to the national accounts to ensure that they were reliable, homogeneous and complete. Also, improving the statistics for drawing up the VAT own resource base was considered essential to bring Romania`s VAT system fully into line with the Community directives.

Since the Opinion, Romania has achieved considerable progress with alignment in the areas of customs and VAT. Romania's statistical system is largely in line with requirements. Progress has been achieved in calculating the GNP resource through harmonisation with the ESA-95 standards, but this work has not yet been completed.

Negotiations on this chapter have not yet been opened with Romania.

Romania should focus further efforts on preparations for application of the acquis on own resources, and on creating a framework for transparent and efficient financial flows to and from the EC budget. Romania should continue implementation of the ESA-95 concepts and pay particular attention to quality and methodology improvements in the calculation of GNP and the national accounts, including enhancing their exhaustiveness. Romania should also work to improve the calculation of the VAT base.

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