Central bank governor: Social contribution cut ineffective on its own


Simply cutting the social security contributions (CAS) is not enough to solve the structural problem of the large disparity between the small number of taxpayers and the high number of beneficiaries, National Bank of Romania (BNR) Governor Mugur Isarescu said on Tuesday, Agerpres reports. He added that a programme for creating jobs is necessary. The central bank governor also pointed out that considering paid work from the perspective of having few tax payers leads to a taxation level of 50-60 per cent of the cost of workforce, which is very high. ‘The solution for Romania would be to reach at least six million taxpayers; otherwise, the vicious circle is here, it’s impossible to address it financially, on the short, medium or long term,’ he added.  Isarescu thinks that replacing a tax with another one is not a solution; a job creation programme is necessary instead, especially in rural areas, where under-employment is obvious. ‘We have also discussed this in the committee for adopting the euro. I personally asked the [central bank] experts to imagine scenarios for breaking out of this vicious circle. Financially, it’s an impossible equation: how to ensure contributions, viability and prevent tax avoidance ‘a la longue’ on one hand, while making retirees happy ‘a la longue’ on the other hand. And you see, almost nobody is happy,’ the governor underlined. According to him, a programme for getting out of this vicious circle might include structural reforms. Nevertheless, he mentioned, ‘we must be more concrete when it comes to the meaning of structural reforms, and to the way of getting rid of this problem, as the contributions cannot be reduced either, although everybody knows they are high, because it would get us out of financial sustainability.’

BNR could decide on a new key interest rate cut

The BNR Governor also stated that there is no risk of deflation in Romania, since the annual average inflation rate was 2.1 percent in May, however the Central Bank does not have the certainty that the annual rate will remain at the same level throughout the year and in 2015, still analyzing the possibility of lowering the forecast.  Isarescu explained that the uncertainties concerning the inflation rate’s evolution have to do with the evolution of foodstuff prices, the base effect of the lowered VAT on bread, which will disappear in September, and also the price of oil, Mediafax reports. The BNR Governor pointed out that the members of the CA will take into account in future decisions concerning the key interest rate the fact that the interests for deposits have become real negative in many countries, and local banks are hurrying up to lower interests on savings, not on credits, at a time when the BNR is implementing monetary policy interest rate cuts. He indirectly admitted that to the extent to which the inflation rate’s downward trajectory is a long-term trend the Central Bank could decide a new key interest rate cut.

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