IMF Mission ended: higher wages and new taxes to come in 2014

At the end of the 2-week visit in Romania, Andrea Schaechter, the head of the IMF (International Monetary Fund) Mission confirmed that the economic program supported through the recently approved stand-by agreement, mostly follows the good direction since all the performance criteria set for September 2013 has been met. She also emphasized that the authorities continued the fiscal adjustment and have not exceeded the deficit limit established for September, even though they have raised much lower revenue than expected.

The EUR2 billion stand-by arrangement the IMF approved this September is treated as precautionary, yet there are some conditions Romania must comply with and that must be considered since the Government aims to increase wages in the public sector and plans an indexation of pensions. Romania’s Prime Minister Victor Ponta confirmed that aspect saying that the Government took into consideration the increase of the minimum wage in two steps next year so that it will reach RON900 by July 2014, as well as the indexation of pensions with 3.76%.

Thus, despite it seems to be very good news at first sight, the financial consequences of this measure will affect all social categories, as the authorities have already announced that starting next year the fuel excise will increase and the legal persons owning special constructions such as transport networks, storages, poles or warehouses will pay an afferent tax.

On the other hand, Ponta stresses out that the Government committed to decrease with 5% the social contribution quota starting July 2014, one of the most discussed issued lately and strongly supported by PNL (Liberal National Party).

‘With respect to the reduction of the social security contributions, it was certainly the most intensely discussed topic these days. The Memorandum Agreement both with IMF, EU Commission and World’s Bank will contain a clear commitment concerning a significant decrease and from our point of view, significant means more than 3%. Significant means 5%, so as the studies we run show it would really have an impact on the business environment and namely, a significant decrease of 5% of the social security contributions starting the second semester of the year, the Government having to identify until July 1 all the necessary resources so that the budgetary impact is neutral. That is that what we lose by reducing the social security contributions to compensate from additional revenue or by reallocating other funds or by reducing the expenses.’ Ponta explained.

Although a reduction of those contributions would be definitely welcomed by everyone, it would mean a deficiency a state budget deficiency of RON2 billion according to the Romania’s Minister of Public Finance, Daniel Chitoiu. Yet, he assures that no additional taxes will apply. So, it only remains to the Government to find more efficient methods to attract money to the state-budget, a section it has not managed to handle very well until now, in order to possibly implement such measure.