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Bucharest
September 22, 2019
EDITORIAL

Hunger for money

“Ministry of Finance has announced its intention to introduce a contractual tax of RON 6,500 or 0.5 per cent of the income registered by the companies that report losses.”

They set out with unrealistic electoral promises and they carried on by sketching a totally idealistic budget for the current year, one based on an economic growth of 2 per cent. The governing parties (the Democrat-Liberal and Social-Democrat parties) are now running into the harsh economic reality brought about by the international economic crisis, far from the enthusiasm shown in 2008. The state budget will be rectified soon, less than two months since its approval in Parliament and almost all Ministries, with the exception of the Labour Ministry, will see their funds diminished.

What a contrast with the boundless promises made during the electoral campaign in the autumn of 2008! From economic growth to a negative economic growth of 4 per cent of GDP; from a budget deficit forecast at below 3 per cent to an uncertain one that the analysts forecast between 4 to 7 per cent of GDP; from promises on 50 per cent wage hikes for the teachers to the freezing of the teachers’ wages or cuts in the size of the teaching staff!

Moreover, after the Romanian authorities, starting with the Head of State and continuing with the Prime Minister and the Governor of the Central Bank, claimed for months that Romania does not need an IMF loan, we have just signed one with a value of approximately EUR 20 bln.

It is clear even for those that are least familiar with economic issues: the state needs money. It needs money in order to cover the external deficit; it needs them for the so-called propping up of the exchange rate, for a minimum level of investments etc. The state budget revenues stand significantly below their anticipated level – in January alone they stood 7 per cent below the level registered in the same month in 2008. Consequently, through the Ministry of Finance and other institutions the Emil Boc Government is searching for solutions in order to hike the budget revenues. They have hiked the tobacco, alcohol and fuel excises before the deadline provisioned by the European Union. A whole row was stirred by the decision to ban the cumulated wages and pensions in the case of the public sector employees and for the time being the situation remains unresolved despite the fact that the Boc Government did not completely give up the idea.

In newer developments, the Ministry of Finance has announced its intention to introduce a contractual tax of RON 6,500 or 0.5 per cent of the income registered by the companies that report losses. In 2007 alone the number of companies that reported losses or that did not register profits stood at 242,106. Those companies had a turnover of RON 134 bln, approximately 16 per cent of GDP. Judging from experience, from the official reports and the mass-media reports, it is obvious that many of these companies are deliberately not reporting profits in order to avoid paying the 16 per cent tax. In order to do that they list the personal-interest goods, the obviously exaggerated protocol expenses and many other things as company expenditures. While that is the case for some companies, the majority of SMEs barely manage to economically survive in the current conditions. The payment of RON 6,500 per year would basically lead to bankruptcy the companies that have several employees. Hence the generally negative reaction from the economic analysts and the employers. They admit that the number of companies that do not contribute to the state budget is far too large and that one way or the other they should be brought back to being ‘taxpayers.’ Nevertheless, the formula brought by the Government is criticized. The employers and the labour unions come up with suggestions on ‘sweetening’ the pill that the SMEs will have to swallow. The employers propose the payment of EUR 500 by the companies that have a turnover of up to EUR 15,000 and that register losses; EUR 1,000 by the ones that have a turnover of up to EUR 30,000 and EUR 1,500 by the ones that have a turnover that ranges from EUR 30,000 to EUR 100,000.

The labour unions followed suit. Scared by the perspective of their own members facing layoffs, the freezing of wages or wage cuts, the labour union leaders are trying to find solutions on their own. And thus they come up with proposals that are just as contradictory and criticized. Bogdan Hossu, leader of Cartel Alfa, claims that the ‘copyright’ method of payment should be eliminated, thus forcing the companies (including most of the Romanian press, whose owners are paying their employees in that manner) to fully pay their dues to the state. According to Mr. Hossu’s calculations, the tax base for the remaining eight months of 2009 would thus grow by no less than RON 800 M. Thus we are in the midst of a frenetic search, the search for a new form of taxation. The modification of the level of the flat tax and the VAT is not taken into account because that would mean the failure of the policies promoted in recent years and of the policy that is currently backed by the Government (reluctantly by the Social-Democrats). However, since the living standards in Romania have fully felt the impact of the national currency’s depreciation, of the retail price hikes and of the price hikes already brought about by the excises, it remains to be seen whether the Government’s and the state’s hunger for money could be fuelled by a population whose financial situation is increasingly precarious.

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