Disputes Over the Reduction of Employers’ Contribution to the Social Security Fund

Though not contested in principle, the reduction of the contribution to the social security fund raises questions with regard to its sustainability.

România Internațional, 10.07.2014, 11:40

Employers and employees, officials and trade unions, all agree that labour in Romania is overtaxed, and this translates into a heavy burden on the economy. Therefore, everybody agrees that the reduction of employers’ contribution to the social security fund, the measure that the Romanian Government wants to implement, would lighten the burden on companies’ shoulders and might even increase the number of legal jobs. However, lowering this contribution at a time when money to the budget is not collected at the desired level might affect the stability of the pension fund, whose deficit has been chronic for some time now, but also the macroeconomic indicators agreed upon with Romania’s international creditors, the IMF in particular. These were the arguments used by President Traian Basescu to defend his decision not to promulgate the law, recently passed by Parliament, according to which employers’ contribution to the social security fund would be 5% lower starting October 1st this year. President Traian Basescu:

“ We are facing a risk of macroeconomic slippage, which can only be avoided by increasing taxes on property. However, increasing this tax would be a mistake, because there are many pensioners and other categories of people who won’t be able to pay two or even three times bigger taxes.”

The president, therefore, asked for a consultation meeting with the government. Prime Minister Victor Ponta though says such consultations are useless, as long as the law has already been adopted by Parliament. Victor Ponta:

“ If he wants to talk to me about the reduction of the contribution to the social security fund, I’m not the right person to talk to, because this is not just a government measure, it’s a law that has been adopted by the Romanian Parliament. So, he can talk to me as long as he wants, but he can only do two things: promulgate the law or send it back to Parliament. In the latter case, we will vote again and, since the President can only send a law back once, he will have to promulgate it and the law will come into force on October 1st.”

Hailed by business people, the measure, on the other hand, is not to the liking of the Fiscal Council, the advisory body specializing in drafting policies in the field. The council agrees the measure is correct in principle, but argues its implementation is very likely to destabilize the budget. On the other, hand, the right wing opposition, which is also not against such a fiscal relaxation, has drawn attention to the fact that the coming into effect of the measure on October 1st, just one month before the presidential elections, might hide some electoral interests.