“While the Fund shares the objective of lowering the high tax burden on labor in an effort to stimulate employment, we need to understand how the government intends to compensate the revenue shortfall,” IMF’s communications director Gerry Rice said in a press briefing last week.
“Without offsetting measures, a reduction of the social security contribution rate by 5 percentage points, would increase the fiscal gap.”
The Romanian government approved last month a five-percentage point cut in the social security tax due for enforcement as of October 1. The bill was approved in parliament and was sent to the President’s office for promulgation.
Upon examining the document, President Traian Basescu expressed concern that the fiscal impact of the tax cut cannot be offset without increasing the existing taxes or introducing new ones.
Basescu called upon the prime minister and the finance minister to specify the financing sources meant to compensate the measure’s negative impact on the state budget, but the discussions were inconclusive.