Tuesday, July 7, 2009

Romania leftists push for major fiscal stimulus

BUCHAREST, July 6 (Reuters) - Romania's ruling coalition Social Democrats proposed on Monday spending 14 billion euros ($20 billion) on investment and fiscal incentives to counter the impact of the global economic crisis.

The 24 measures, which the party plans to discuss with their Democrat Liberal partners, envisages spending on infrastructure, housing and farming, rebates for pay-on-time taxpayers and incentives for employers who create new jobs.

The Social Democrats also proposed scrapping a corporate lump sum tax which the government has just introduced in a bid to bring the grey economy to the surface. The plan supports a cut in the value added tax for staple foods and cutting energy tarriffs for household consumers by a third.

'It is good to have proposals that focus on investment. But we've been hearing about investment plans for a while and nothing is actually done,' said Nicolaie Alexandru-Chidesciuc, ING Bank's chief economist in Bucharest.

'It isn't good at this time to adopt measures that ... help companies or the population because we cannot afford these expenditures. They may help the real economy in the short term but ... lead to tax hikes in the longer term.'

Romania has slid into recession this year as the world crisis slashed lending, consumption and demand for Romanian goods abroad, and forced the EU member to secure 20 billion euros in IMF-led aid in March.

The two ruling parties form an uneasy coalition, riven by disputes and policy differences, with the leftists seen as less fiscally restrictive. However, they command some 70 percent of seats in parliament, allowing them to push through difficult legislation.

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