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June 26, 2022

Isarescu to gov’t: Do not raise taxes! Let economy recover!

BNR governor warns public sector workers that salaries cannot be hiked without restructuring, noting that Romania needs not economic growth and high unemployment simultaneously.

National Bank of Romania Governor Mugur Isarescu, has veiledly criticised the government’s intention of raising taxes. One of the measures through which the government hopes to make more money for the budget is still the controversial lump-sum tax to be levied on restaurant, taxi, catering, car wash, etc. businesses. SME representatives are in turn unhappy about the fact that the state does not consider their actual economic potential and imposes a range of dues on them which – they claim – will bring to chain bankruptcies. “Let’s not forget that we have been this close, but taxes were still not increased, at least not the important ones, and Romania is now in a re-launch phase. If we are not patient enough to let the economy recover, one option would be to increase taxes. Another option would be to make corrections through the back door, through inflation and exchange rates, but I guarantee you this will not happen in Romania. Correction through inflation has to be avoided because it has been historically demonstrated that the poor end up paying more and speculators get rich in such cases,” Isarescu said during a banking seminar in Ramnicu Valcea.

Isarescu further said Romania could get out of crisis “with good policies and restored confidence,” underlining that signs of economic re-launch are visible. The governor also said the country’s public debt must not reach 60 per cent of its GDP. “Remember that the crisis in Romania was started and deepened by the private capital. An unresolved private debt becomes a public issue. Romania needs no economic growth with big budget deficits, it needs a growth based on balanced consumption, investment and export,” Isarescu added.

At the same time, the BNR governor also warned public sector employees that salaries could not possibly grow without restructuring, and noted that Romania needs no economic growth and high unemployment simultaneously.

Credit still getting cheaper

BNR has all the reasons to cut the key-interest rate as long as inflation rate drops, Isarescu also said. He explained BNR also had to consider passive interest rates paid by commercial banks and that retail deposit interest rates should be smaller than 6 per cent. According to the central bank governor, banks are cautious to reduce rates.

Seven things Romania needs not:

1. ‘There are chances of economic growth, but we need NO economic boom’;

2. ‘We need NO economic growth with inflation, as long as inflation is a confidence erosive factor in the long run’;

3. ‘We need NO growth that would resume foreign deficit’;

4. ‘We need NO economic growth likely to inflame public debt above the current situation in Greece’;

5. ‘We need NO economic growth accompanied by unemployment’;

6. ‘We need NO economic growth with big budget deficits and with big taxes’;

7. ‘Salaries CANNOT grow without restructuring. Never, never, never!’.

New all-time lowest key-interest rate?

BNR will decide today on cutting key-interest rate by 0.5 percentage points from the current 7 per cent to a record minimum level of 6.5 per cent to support economic recovery and lending and to alleviate RON appreciation pressures, a majority of economic analysts say, according to Mediafax. JP Morgan economist Miroslav Plojhar says BNR might cut key-interest rate to 5 per cent from 7 per cent this year. The analyst also expects Central and Eastern European currencies to continue to appreciate following current account improvements, with a more visible interest decline trend in Romania and Hungary and with a delayed increase in Poland and the Czech Republic.

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