Economic Growth without Tax Raises

Public sector salaries will not be raised this year, but neither will taxes and charges.

Roxana Vasile, 19.08.2013, 13:51

The bad news is that until the end of this year, the salaries of Romanian public sector employees will not be raised. The good news, however, is that neither will taxes and charges, according to an announcement made by the government, more specifically, by Prime Minister Victor Ponta himself:

Victor Ponta: “No taxes will be raised until the end of this year. We will only increase excises on yachts, watches and alcohol. Starting on January 1, 2014, in order to offset the deduction of healthcare contributions given to pensioners with incomes below 740 lei, all home owners who make incomes from renting apartments will pay 5.5% to the public healthcare system.”

The information offered by the prime minister is not new. Romania media wrote about this in late July, when a new precautionary stand-by agreement was signed with the International Monetary Fund and the European Commission. The same data were confirmed in a recent interview by Guillermo Tolosa, representative of the International Monetary Fund in Romania. Since the VAT on bread will be slashed from 24 to 9% starting September, the drop in State Budget revenues will have to be countered by means of increasing excises on luxury products such as yachts, watches and alcohol. But only a small number of people will be affected by this measure, namely the more wealthy ones, which is only fair, said Guillermo Tolosa, who added that this would also strengthen the fairness of the fiscal system in general.

As for Prime Minister Victor Ponta, he said he would only be happy to be criticised for reducing the VAT on bread in exchange for raising excises on luxury products. The measure is temporary anyway, and unless the effects are those expected by the government, namely a drop in both bread prices and tax evasion, this measure will be given up. Moreover, according to the prime minister, the same reduction may be applied to other products next year, if things go according to plan.

Victor Ponta: “I want to see the effects of the VAT reduction starting this September, and decide whether we can move on to other foodstuffs. The top priority for the 2014 state budget will be to reduce the social security contributions paid by employers.”

The government is working at present on the 2014 state budget bill. And the good news received from statistics offices is quite encouraging in this respect: in the first half of this year Romania had a 1.7% economic growth, as compared to the corresponding period of last year. It is a substantial increase, if we look at the other European countries, said Victor Ponta, who added however that in spite of this performance the State Budget cannot finance any salary raises this year.