Economic Developments in Romania

Romanian authorities have decided to cut by 5% the employers’ contribution to the social security fund, starting October 1st, although the decision has not been green -lighted by the international financial institutions. The decision has been announced by Prime Minister Victor Ponta, who has given assurances that the Romanian state will reach all the macro-economic goals established jointly with the IFM, with which Romania concluded a precautionary agreement last autumn.

Corina Cristea, 17.06.2014, 13:15

Romanian authorities have decided to cut by 5% the employers’ contribution to the social security fund, starting October 1st, although the decision has not been green -lighted by the international financial institutions. The decision has been announced by Prime Minister Victor Ponta, who has given assurances that the Romanian state will reach all the macro-economic goals established jointly with the IFM, with which Romania concluded a precautionary agreement last autumn.

The decision, termed by the opposition as a populist one, given that 2014 is an election year in Romania, should have come into effect on July 1st, but following talks in Bucharest with representatives of Romania’s international lenders, the implementation was postponed until October. This economic measure, which is different from all that has been promoted in Romania so far, can be implemented because there is money in the state budget for it, the Prime Minister has explained. He has also said that the implementation cost will stand at around 850 million lei in the last quarter of this year. Victor Ponta:

“We will not increase the budget deficit, we will not raise taxes or fees to cover the costs of this measure; but the decision must be taken, and we will set forth the proposal, with the consent of the ruling coalition, because this is something that we’ve established together. So the draft law will be submitted to Parliament for approval, and I am sure that the opposition will vote in favour too. We need this political consensus, to make sure this measure aimed at reducing the level of labour taxation is implemented right now, not next year or even later.”

July 1st is still the date when the minimum gross salary will go up from 850 lei as it is today, to 900 lei. This is the second such decision this year, after the one on the 1st of January, when the minimum gross salary went up by 50 lei. In another development, Prime Minister’s advisor Ionel Blanculescu has announced that the tax on special constructions might be changed early next year. However, this will only happen if an analysis to be conducted in the coming period shows that the impact of the measure on the Romanian economy will be much higher than estimated. According to early estimates, the collected sum should stand at around one and a half billion lei, but according to the IMF Romania is not yet capable of fully collecting such a tax, so the real amount that is likely to be collected is 400 million lei.