Tuesday, November 5, 2013

Romania government agrees 2014 budget with IMF, EU

BUCHAREST (Reuters) - Romania's leftist government has agreed a budget plan for 2014 with the International Monetary Fund and the European Commission under an aid deal, introducing new taxes but raising the minimum wage, Prime Minister Victor Ponta said on Monday.

IMF and EU representatives were in Bucharest to review Romania's third aid deal since 2009. The government does not intend to draw on the 4 billion euros made available.

Ponta said his government will target a fiscal shortfall of 2.2 percent of gross domestic product in 2014 - in both cash terms and European accounting standards - down from this year's target of 2.5 percent of GDP.

The economy of the EU's second-poorest state is also expected to grow 2.2 percent next year.

Ponta came to power after a previous centrist coalition became deeply unpopular for taking painful austerity measures under the country's first IMF-led aid deal, including cutting state wages by a quarter and raising the value added tax.

While his government has reversed the wage cuts and brought the budget deficit under the EU's 3 percent Maastricht ceiling, revenues have underperformed so far this year and the country's economic recovery is struggling to pick up speed.

Ponta said the minimum wage will rise in two stages to 900 lei ($270), from the current 800 lei, while some state employees, like teachers and doctors will receive modest salary hikes and state pensions will be indexed by 3.76 percent.

But the government will also hike royalty taxes on all mineral resources except oil and gas by 25 percent and introduce a new excise tax on fuels. Starting next year, Romania will also index excise taxes to inflation - it currently uses an October exchange rate.

The cabinet will also introduce a special tax on "special" buildings owned by corporate clients, such as electricity polls and warehouses, without elaborating.

Ponta said the government is also committed to cutting a tax on social contributions for employers, which analysts have said would be a boost for investors and the economy.

"It is a political commitment that ... certainly from July 1 a significant cut of 5 percent will be enforced," Ponta said, adding the cabinet must find additional resources to compensate the tax losses.

Deputy Prime Minister Daniel Chitoiu estimated those losses for 5 months at 2 billion lei. He also said Romania has agreed to list a 15 percent stake in hydro power producer Hidroelectrica and a minority stake in lignite power holding Oltenia next year.

The IMF will present its review of the aid deal on Tuesday.

(Reporting by Luiza Ilie; editing by Ron Askew)

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