Thursday, June 19, 2014

Bloomberg News Romania May Cut Employers’ Social Payments Over IMF Objections

By Edith Balazs 
June 18, 2014

Romania’s government approved a draft bill cutting social contributions paid by employers to help create jobs, over the objection of international lenders.

The cabinet plans to cut social contributions by 5 percentage points beginning on Oct. 1, according to a statement from the Finance Ministry. The bill needs the approval of parliament, where the coalition government of Prime Minister Victor Ponta has a majority. The International Monetary Fund warned in April said Romania must refrain from cutting taxes or increasing spending as fiscal rigor is “critical.”

Romania is on its third consecutive IMF program since the global financial crisis rocked the country in 2009 and is looking to wean itself off the Washington-based lender’s assistance. The country has brought its budget deficit to within the EU’s limit of 3 percent of economic output and is now planning to sell stakes in state-owned companies to cut the shortfall to 2.2 percent of gross domestic product.

The leu was little changed at 4.398 per euro by 5:18 p.m. in Bucharest, recovering from its weakest level in three weeks yesterday. The benchmark BET stock index gained 0.4 percent to 6,767.28, snapping two days of decline.

The estimated budget impact of cutting the levy is 4.8 billion lei ($1.5 billion) per year and will lower this year’s budget revenue by an estimated 850 million lei, according to the Finance Ministry.

Higher-than-expected revenue from real-estate taxes will compensate for this year’s budget shortfall resulting from the cut in social contributions, the ministry said. The government is planning various measures, including more efficient tax collection and stricter anti-corruption regulations, to offset the impact next year, according to the statement.

The IMF postponed the completion of its review of Romania’s support package until November to give the government time to decide on fiscal measures, Ponta said in an interview on June 12. The review will be completed after the cabinet drafts its 2015 budget following a Nov. 2 presidential election, he said.

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net

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