That is why the issue being raised, aside from the obligation of keeping the budget deficit low, is what will be the driving force of economic growth.
The idea of cutting the VAT (value-added tax) is raised again as a means of stimulating consumption, which would in turn bring growth. Senator Ovidiu Marian (of ruling party PDL), head of the Senate’s Budget-Finance Committee, told daily Gandul that the VAT needs to be cut because “Otherwise we cannot start the consumption engine we killed when we raised the VAT.”
Dan Sucu, owner of Mobexpert, says the VAT reduction would be the first ray of hope for people who are sick of the flurry of bad news coming their way in the last few years, and that this measure would immediately be reflected in price declines and consumption rises.
Economist Laurian Lungu says the VAT cut can be considered only if it is adopted as part of a wider set of measures, not as a separate policy.
Last summer the Government raised the VAT from 19% to 24% after the Constitutional Court rejected a 15% pension cut, as a temporary measure to balance the budget whose revenues were significantly hurt by the economic decline.
Now everybody agrees that it was a major mistake – “the Government’s biggest mistake,” as Romanian president Traian Basescu puts it. But how to fix it?
By going back to how things were before, otherwise one cannot stimulate consumption, which needs to become once again the driver of economic growth, says Ovidiu Marian.
The Romanian economy was pulled out of recession by exports, the share of exports to GDP being around 30%, which makes this growth engine quite problematic, especially considering that fears over the situation in the West (the destination of most Romanian exports) falling back into recession is deepening.
(English version by Daniela Stoican)