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August 17, 2022

Lower VAT on foodstuffs, dangerous or useless dilemma

President Traian Basescu is asking for the payment of salaries and pensions to be guaranteed in favor of such a decision, while Mihai Tanasescu is talking about changing IMF the agreement.

After President Traian Basescu’s request to have the law on lowering the VAT on staple foodstuffs to 5 per cent re-examined was rejected on Wednesday within the Senate, its initial text thus remaining in force, the Head of State said in an interview for Realitatea TV: “I could leave such a law be provided the one asking me to do so can guarantee that we will continue to pay salaries and pensions.” Basescu pointed out that lowering the VAT on foodstuffs entails drops in budget revenues. On the other hand, Romania’s representative at the IMF was more blunt, Mihai Tanasescu stating for ‘Evenimentul Zilei’ that such a reduction entails changing the agreement with the international financial body. “Romania’s current programme with the IMF, as well as its future programme, is based on the fiscal policy’s stability. Modifying the fiscal policy hasn’t been taken into account. Of course, in case the Parliament, which is sovereign, approves such a change, the programme’s details will be re-discussed. Until then however we have to wait for the Lower Chamber’s final decision and then we will be able to make an evaluation if necessary,” Mihai Tanasescu stated. He also stated that if the details change then the mission that will come to Bucharest will have to tackle this legislative change too. The IMF Board will analyze today the seventh evaluation of the stand-by agreement, as well as Romania’s request to close a precautionary agreement with the IMF.

ING analysts quoted by Mediafax go even further. They consider that in case the MPs reject the re-examination of the law on lowering the VAT on staple foodstuffs to 5 per cent the IMF could freeze the new precautionary agreement with Romania. Moreover, there will be negative effects on the RON and on the Finance Ministry’s financing costs.

In their turn, specialists claim that lowering the VAT on staple foodstuffs to 5 per cent is not efficient unless it is applied along a product’s entire route from producer to consumer. Stefan Nicolae, President of Agrostar (the National Federation of Agriculture, Tobacco and Associated Domains and Services Trade Unions), explained for Antena 3 that if the VAT is lowered only within the processing system then the processors will be the only ones to win. Consumers would not benefit from such a move because prices would not drop. On the other hand, he believes there are significant chances for the law to go through the Lower Chamber in its current form because there is significant pressure for that to happen. “We too will express our point of view within the Lower Chamber’s Commission for Agriculture and we hope it will be taken into account,” Nicolae explained.


Olguta Vasilescu, spokesperson of PSD Departments, stated yesterday that the law on lowering the VAT on staple foodstuffs to 5 per cent is sustainable if the government will find solutions to combat tax evasion. The PSD Senator stated that the Lower Chamber’s decision to adopt the law by rejecting President Traian Basescu’s request to have it re-examined is “vital” in order to overcome a food crisis.
“President Traian Basescu told us that this law is bad because it’s not sustainable, while Nicolae Vacaroiu, President of the Court of Accounts, pointed out that the underground economy surpassed EUR 5 bln. The law is not bad and it’s also sustainable, it’s just that the Boc Government is incompetent and is encouraging corruption by not tackling tax evasion,” Vasilescu added.


On Wednesday evening President Traian Basescu also warned that “although the crisis seemed to have passed” it appears “we still have big problems in the EU.” The Head of State said that the problems that countries like Greece, Ireland and Portugal face are affecting Romania’s economy. “You know what horrifies me? What if the crisis will return? What if it returns?,” the President asked rhetorically. He considers that if Romania resumes economic growth in 2011 public sector employees will be able to return to the salaries they had prior to the austerity measures.

“If we manage to resume economic growth this year, even given the bad news concerning what happens in Europe, I believe salaries will return to the levels they had prior to the cuts. I hope,” Traian Basescu stated, stressing “I believe.”

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