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May 24, 2022

Squeezing nickel out of stone

The Romanian economy emerged in rather poor shape from 2009, a year that brought economic decline, higher unemployment and lower living standards for much of the country’s population. The statistic data released yesterday sounded like those jokes that begin with: “I’ve got the good news and the bad news. Which do you want to hear first?” The good news is about the economic decline being (slightly) below an anticipated level, or 7.1 pc of the GDP, against the 7.2 pc forecast. The really bad news is that there’s several bad news. The figure of 7.1 pc of the GDP adds to the fact that the economic downturn continued through the last quarter (the GDP fell by 6.5 pc year-on-year). Add to this the fact that budget deficit unveiled by the Finance Ministry, worth RON 36.4 bln, stands at 7.2 pc of the GDP (based on the GDP figure reported by the Ministry), while that reported by the National Statistics Institute (INS) accounts for 7.2 pc of the GDP (based on INS figures).

In the accord with the International Monetary Fund (IMF), Romania pledged to keep the budget deficit of year 2009 under 7.3 pc of the GDP. To make sure that Romania does not “mystify” the deficit, the Fund put in the accord an upper limit for arrears. According to analysts, Romania missed this target, but the IMF turned a blind eye, for the second time in a row. The reason of this flexibility is that Romania still observed the 7.3 pc deficit target. But things appear to be different. Finance Minister Sebastian Vladescu strongly denies it: “The nominal budget deficit is the one agreed upon with the IMF.” This is not the place for elaborating upon statistic data, which are thoroughly reflected elsewhere in our newspaper, but it is certain that year 2009 was far from what we wished it to be, and the economic decline registered by other European countries (some even more drastic) is no consolation for us. Others may afford such declines, as they start from living standards significantly higher than Romania’s. But here, the direct effect is raising the number of those who live below the official poverty standard (which is purely statistic, anyway), hence a very serious involution. Almost everything went wrong last year. Neither the constructions sector, which was not influenced by the ‘First House’ government program, nor the agriculture, much less the exports. And the Boc government, in its last year’s formula (PDL-PSD), did nothing to help the economic recovery. The political disputes in perspective of November’s presidential elections completely overshadowed the immediate economic realities, although the situation was worsening. Things were over-politicized. During presidential election campaign, we seemed to live in a parallel world, waiting for 2010 to bring us only milk and honey.

Now, in 2010, the new Cabinet, led by the same Emil Boc, does not show any particular performance in fighting crisis effects, while milk and honey turned into layoffs, salary cuts and an administration based on the state’s policy to “squeeze nickel out of stone.” The so-called anti-crisis measures, – as the First House is described to be – the incentives granted to youth who open firms, and the six-month tax exemption for companies hiring jobless, are so full of hurdles that they become almost impossible to enforce. Though it swears it does not intend to increase taxes, under the pressure of the IMF and of the financial deficit caused by low incomes to the budget, the Boc Cabinet uses every subterfuge to squeeze money. When asked directly, government officials always claim there is no problem with the payment of salaries and pensions. Yes, the money from the IMF loan tranche has just arrived. But it won’t last long. As we said on other occasions, the state’s need for financing is huge, and the Finance Ministry is always looking for money. It borrowed from the commercial banks operating in Romania, now it issues bonds at home and abroad… Soon, the new loans will only serve to cover the interests of old credits.

So acute is the need for funds, that ministers are seeking – each his own way – new methods to squeeze more money. This explains the rushed statements made by the ministers of Finance and Labour, when they spoke about instating taxes on pensions under RON 1,000 and cancelling child allowances in the case of rich families. When PM Boc reprimanded them and threatened to dismiss them, the two ministers retracted what they said just days ago. But the desperate need for money is here to stay.

Faced with such acute needs, PM Boc recently criticized in strong words the National Agency for Fiscal Administration (ANAF)’s activity urging its employees to “get in the street” and combat fraud and black economy. Like if tax dodging only appeared now, and the head of ANAF (Sorin Blejnar) were appointed by someone else than PM Boc, a year ago… “If we cannot curb evasion… what’s left to do? Raise taxes,” was the solution found by the premier, in a dialog with ANAF inspectors. It is true that almost a quarter of the economy does not pay its dues to the state budget, but this is old news and I never heard the head of government being so angry about the situation in the past. On the contrary, during election campaign he went to great lengths to explain to us how bright thing are going to be in the future.

Now, just like during campaign, the government overwhelms us with facade initiatives, meant to put down people’s unrest. Meanwhile, the country’s political priorities are simply diversions of no real and immediate relevance: replacing the Senate Speaker, changing the Constitution and the Electoral Law etc. None of these is relevant – to any extent – for the average citizen, who is more concerned with what tomorrow will bring.

And the solution found by the premier is to raise taxes. With a year 2010 that is at least uncertain, the imperative of enforcing such measure (which will consist, according to sources, in raising either VAT, or flat tax) is only a matter of time. As a columnist wrote recently, this is Romanians’ worst fear, especially as “the taxation power of the Romanian state is virtually absolute and this is even more frightening as it’s a weak and oversized state.”

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