Pension cuts unconstitutional, VAT rises to 24%

25 per cent cut in public sector wages and most of the other austerity measures remain the same. Opposition mounts calls on government to resign, mulls new no-confidence vote.

In an unexpected move, the Constitutional Court (CCR) on Friday dealt a heavy blow to the government’s austerity plans, ruling that 15 per cent cuts in pensions were unconstitutional. Another measure declared unconstitutional was the recalculation of special pensions for judges, prosecutors and Constitutional Court magistrates.

The decisive vote in declaring pension cuts unconstitutional came from judge Valentin Zoltan Puskas, who was appointed to his position in 2007 by the Senate, at the proposal of the Democratic Union of Hungarians in Romania (UDMR), which is currently part of the ruling coalition.

Although facing mounting calls to resign, mostly from the opposition, but also from within his own party, PM Boc is determined ‘to do whatever it takes’ to enforce expense cuts of July 1.

One of the next steps took by the Executive was to increase VAT from 19 pc to 24 pc, without also raising the flat tax rate. The proposed VAT hike will be sent to the IMF, which will meet on Wednesday – most likely – to make a decision about granting the next disbursement to Romania.

However, Finance Minister Sebastian Vladescu argued that the VAT increase was already agreed with the IMF and will secure extra incomes worth RON 3.5-4 bln that will allow Romania to range within the deficit target of 6.8 pc of the GDP.

In retort, representatives of business associations and employers’ organisations say that VAT increase will result in higher prices throughout the whole economy, a drop in the purchasing power of the population, plus inflation and higher unemployment.

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