- Predictability is crucial to economic development.
- Impact assessments and proper consultations are mandatory when adopting new policies.
The Foreign Investors Council (FIC) is worried by the substantial changes to the governing program, announced recently. “FIC believes that such radical changes, announced at very short notice, can have a destabilizing effect on the economy and only serve to dent the trust of existing and future investors, regardless of their origin. The Government announced a second revolution of the taxation system in the space of six months and this created panic in the business community, for local and foreign companies, small ones or large multinationals,” a press release issued on Wednesday warns.
According to the quoted document, “a speedy implementation of such fiscal policies without proper analyses, impact assessments and consultations will have a negative impact on the activity of all businesses in Romania in all sectors, large and small”.
In the past year, FIC members have argued repeatedly that Romania can become the 10th largest economy in the European Union in the next two decades but these kind of radical policy changes, that breed uncertainty, put Romania further away from that objective. The new measures which have a large potential impact are sending negative signals towards the business community and potential investors.
Policy makers need to be aware of the power of words. What they say in public can move markets and affect investment decisions. Repeated announcements of tax increases or reductions, of substantial changes in fiscal regimes only serve to create an economic environment where uncertainty is the norm.
For investors assessing new projects, this can only mean a postponement of projects until things clarify or a decision to invest in another country.
FIC recently published a report together with the Academy of Economic Studies on the evolution and impact of foreign direct investments in Romania. One of the clear-cut conclusions is that FDI played a key role in the development of Romania in the past 25 years and will continue to do so for the foreseeable future. Investors should not be discouraged with confusing and continually changing policies.
As regards some of the new taxation measures that have been included in the governing program we believe that some of them have not been properly explained, are without an impact assessment and some of them have been tried and tested in other countries, EU members and not only, without results worth speaking of. FIC believes, for example, that a move to a system of taxation on the company’s turnover could be counterproductive. Not only will this penalize all large businesses with small margins, but it goes against the trend in the European Union and, even worse, could make Romania less competitive in its region.
“FIC members believe that the Government needs to make careful considerations and calculations before going ahead with household taxation, a solidarity tax or with shifting all social contributions on the employee’s side. These policy changes coupled with increased wages for public employees and other measures on the spending side, risk hurting Romania’s hard earned macroeconomic and budgetary stability at a time when the core of Europe is putting more emphasis on this,” the FIC’s communiqué further maintains.
“The members of FIC employ 182,000 persons and have a turnover of more than 180 billion RON, roughly 25% of Romania’s GDP. Substantial changes in public policy have a significant impact on the operations of these companies and consequently on Romania’s economic growth and we express our openness to dialogue with policy makers. FIC celebrated 20 years of activity in Romania this year and our objective remains the same as always: sustainable economic growth which benefits everyone,” the quoted document also reads.