Wednesday, October 7, 2009

Romania eyes VAT hike if 2010 fiscal goal at risk

BUCHAREST, Oct 6 (Reuters) - Romania may consider plans to hike the value added tax next year if a sharp, IMF-prescribed reduction of the government budget deficit will not be accomplished, Finance Minister Gheorghe Pogea said on Tuesday.

Romania's minority cabinet of Prime Minister Emil Boc has set a fiscal deficit target of 5.9 percent of gross domestic product for 2010 against 7.3 this year, a key requirement under the country's 20-billlion-euro aid deal led by the IMF.

Romania went through a sharp economic reversal in the last year because of the global financial crisis. It shifted from being the European Union's fastest-growing economy to one in dire need of IMF aid to prevent a financing crisis.

"We will be keeping the flat income and profit tax but, when we take into account the VAT issue ... in case the 5.9 percent gap proves unsustainable ... we will make this public," Pogea told reporters after a weekly cabinet meeting.

The Romanian VAT currently stands at 19 percent.

Analysts said Boc's government would face an uphill battle to win support for difficult fiscal reforms which have angered workers from Romania's vast public sector at a time of deep economic recession.

Last week's break-up of his centre-left coalition after less than a year put into question Bucharest's ability to meet fiscal targets set by the International Monetary Fund in return for aid, economists said.

Boc's Democrat-Liberals and their former leftist partners had ruled since December, sparring over cost-cutting reforms and trading blame for economic woes.

No comments: