The 5 pct decrease of the CAS comes into effect in October, without the IMF’s approval

The expected decrease by 5 percent of the social insurance contribution (CAS) will be eventually effective starting October 1, five months later than the initial target, Victor Ponta yesterday announced, also mentioning that the IMF and the EU Commission have not agreed with this fiscal measure.

Although there will be a negative impact on the budget, as with implementing the measure the Ministry of Finance anticipates a deficit of some 850 million lei for the final quarter of 2013, it will be covered by the existing surplus. Hence, the Prime Minister stated that the budget deficit will not increase, nor will they introduce any additional taxes as compensations.

“For having a sustainable fiscal and budgetary policy and following the discussions we had with our international partners and the work carried out within the Ministry of Finance and the Department for Budget, we can reasonably and sustainably send to the Parliament the next week the bill on the 5 percent decrease of social insurance contribution for the last quarter with effect from October 1, as this way there is no need to increase any tax. Upon properly managing the budget and having additional revenue and lower expenditure, we are in the position to cover the negative impact of the decrease in 2014, impact of about 850 million lei in the last quarter, according to the estimations of the Ministry of Finance, amount available in the budget”, he said during a press conference.

Asked whether the IMF and the EU Commission have concurred with this measure, Ponta indicated that it has not got their approval, also asserting that the stand-by agreement Romania concluded with the IMF, the EU Commission and the World Bank remain on track, in spite of the IMF Mission leaving without completing any report as regards the third review under the agreement and which was deferred until November.

Ioana-Maria Petrescu, the Minister of Finance, further explained that the related negotiations were quite difficult as the Romanian party wants to avoid introducing another fiscal measure to compensate the CAS reduction: “Since the very beginning we have discussed several scenarios, but it seemed unfair to introduce a tax on business to reduce another tax. On the other hand, we totally agreed on the fact that we need to meet the deficit target and thus, we eventually reached the conclusion that it is wiser to apply this measure only starting October 1”.

Petrescu continued explaining that there is a much more limited impact on the budget provided the CAS decrease apply from October on, impact which is “affordable”, confirming the Prime Minister’s statement.

Additionally, there are other financial options available starting October 1, if necessary, she said, adding that: “We had a very clear discussion with the IMF Mission, which will come back in November to discuss the 2015 budget and we will make a commitment on the budget to meet the deficit target and, of course, we will maintain this measure, yet, only then it will be decided how the new budget will satisfy both the prerequisite of preserving the deficit and that of keeping effective the decrease by 5 percent of the CAS paid by employers”.