Monday, May 24, 2010

IMF says it proposed tax hikes to curb Romania's deficit

BUCHAREST (AFP) - The International Monetary Fund said on Saturday it had suggested tax increases to curb Romania's risingpublic deficit but that the government chose to slash wages and pensions, which sparked massive protests this week.

"The authorities and the IMF are in full agreement that urgent corrective action is required to address the serious economic situation facing Romania," the IMF mission chief for Romania, Jeffrey Franks, said in a statement.

"The IMF had suggested an option that would have entailed greater reliance on revenue measures. Among the revenue measures discussed were increases in VAT and the flat tax, plus a move to a progressive income tax," he added.

Romania currently applies a single flat rate of 16 percent on income.

Some difficult expenditure cuts would have also been required under any scenario, the IMF also said.

"The option that was chosen by the Government focused mainly on rolling back what it considers to be unsustainable expenditure increases in recent years," Franks said underlining that "the choice about what option to pursue belongs to the government."

Romania's government at the beginning of the month announced it would slash wages in the public sector by 25 percent and cut pensions and unemployment benefits by 15 percent starting on June 1 in an attempt to curb the public deficit.

That move led to mass public protests this week. Between 30,000 to 50,000 people took to the streets of Bucharest Wednesday and unions are talking about a general strike for May 31.

After years of steady growth, Romania's economy shrunk by 7.1 percent in 2009 and is expected to stagnate or even shrink again in 2010.

Bucharest committed to curb its public deficit in order to get a new instalment of a 20-billion-euro aid package from the IMF, the European Union and the World Bank.

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