Fiscal measures and their effects in Romania
In spite of criticism and protests, the Government of Romania has passed this week an emergency decree on new fiscal measures to be introduced as of January 1, 2018. According to this “fiscal revolution,” as the move has been dubbed, the responsibility for paying social security contributions will rest entirely with the employees, instead of the employers, and the income tax will go down from 16 to 10%. At the same time, companies will pay a contribution accounting for 2.25% of a company’s overall salary fund. Other changes are designed to restrict the means of shifting multinational profits abroad. Also, the compulsory contributions to privately managed pension funds are lowered from 5.1% to 3.75%. Minimum pension benefits will also be raised by 26 euros as of July 1. Critics fear that the implementation of these provisions will result in lower incomes for employees, while also jeopardizing jobs. The coalition of the Social Democratic Party and the Alliance of Liberals and Democrats in Romania, in power in Romania, argues however that the Fiscal Code changes will benefit both the citizens, and the companies operating in Romania. More specifically, employees’ net incomes will go up without the employer paying more money to the state budget, while also ensuring higher benefits for the future pensioners. PM Mihai Tudose says some of these measures will bring more money into the state budget, in order to fund public education, healthcare and infrastructure. The Liberals, in opposition, have criticized the changes and announced they will be taking steps to table a no-confidence motion. They claim the announced measures already triggered higher interest rates, a weaker national currency, higher inflation rate and disquieting signals from the National Bank. The main trade union confederations have announced nation-wide protests will continue, and say they will request that the Ombudsman take the matter to the Constitutional Court. In turn, people took to the streets in Bucharest and other important Romanian cities.
Data on the Romanian economy
The European Commission has adjusted its forecasts regarding the growth of the Romanian economy and the budget deficit in 2017 and 2018, while also warning that uncertainties related to the Government’s policies might affect the economic growth. According to the autumn economic forecast released on Thursday by the European Commission, the Romanian economy will probably go up by 5.7% in 2017, more than the 4.3% estimated in spring. Brussels revised its forecasts for 2018 as well, predicting up to 4.4% increase of the economic growth rate, as against the 3.7% forecast in spring. The public deficit, on the other hand, is expected to reach 3% of the GDP this year, to go up to 3.9% in 2018 and to widen to 4.1% in 2019. Talks on economic indicators were held on the same day in Bucharest too. As the Governor of the Central Bank confirmed, the Romanian currency – the Leu – has been depreciating, already reaching the lowest level in the past five years. Mugur Isarescu warned about this development being influenced by the deterioration of the balance of trade, which has reached worrying levels. Mugur Isarescu:
“Overall, this depreciation trend has prolonged, though the figures have not been high, and it can definitely be linked with Romania’s balance of trade, which has also been depreciating. The latest figures have been announced today, and we have a trade deficit of more than 8 billion, which is a problem!”
The Governor also stated that inflation would grow faster than anticipated in spring, followed by a slower recovery. Therefore, the inflation rate forecast went up from 1.9 to 2.7 this year, to reach 3.2 % in 2018, according to estimates made by the Central Bank.
The Higher Council of Magistracy advises against bill amending the justice laws in Romania
The Higher Council of Magistracy has advised against the bill amending the justice laws, submitted by Parliament for analysis. Previously, the Directorate for Investigating Organized Crime and Terrorism (DIICOT) and the National Anticorruption Directorate had also disproved of the bill.
In turn, Romania’s President Klaus Iohannis has also criticized the bill. He believes that some of the provisions it includes are good, opportune and necessary, but others have been slashed and trimmed, referring mainly to the threshold used to define abuse of office. According to the current form of the bill, the president maintains the responsibility to appoint the heads of the prosecutor’s offices, although, at first, that prerogative had been removed, but he would no longer be able to revoke them. Also, the bill provides for the setting up of a directorate whose role would be to investigate the magistrates subordinated to the General Prosecutor, which would translate into lesser responsibilities for the National Anticorruption Directorate. As regards the Judicial Inspection Corps, it would be subordinated under the new law to newly established National Council for Judges and Prosecutors Integrity. The issue has also been approached this week in Brussels, where the Justice Minister Tudorel Toader held talks with EU officials, including the European Commission First Vice-President Frans Timmermans.