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News 08 Nov 17

Romania to Adopt Fiscal Changes Despite Opposition

Romania’s Social Democratic Party-led cabinet is set to pass a controversial decree on fiscal changes Wednesday that critics say could result in wages slumping and economic instability. 

Ana Maria Touma
BIRN
Bucharest
Romanian Social Democrat-led cabinet during its weekly meeting. Photo: gov.ro

Romania’s Social Democratic Party (PSD)-led government is set to adopt a controversial new Fiscal Code, despite widespread opposition from unions, the business community, and the public administration.

Prime Minister Mihai Tudose confirmed Tuesday that the new Fiscal Code is set to pass as an emergency decree during Wednesday’s cabinet meeting. Emergency decrees hold the same status as organic laws passed by parliament.

Over 10,000 employees of the Dacia commercial vehicle plant in Mioveni protested the move Tuesday, while all other unions threatened a general strike. Unions say that the decree will lead to a drop in wages starting January 1, 2018, as most employees will have to pay 35 per cent of gross salary in taxes and social contributions.  

Mayors from across Romania also gathered in Bucharest to call on the prime minister and PSD head Liviu Dragnea to give up what they called “the fiscal revolution”.

Activists also called for renewed protests in front of the main government building in central Bucharest on Wednesday at 11:00am, requesting that companies allow their employees to attend.

President Klaus Iohannis also criticised the move on Monday calling it “totally untimely” and said that the government should postpone the move until its impact is thoroughly assessed.

Finance Minister Ionut Misa said Monday that the new Fiscal Code is intended to transfer social contributions from the responsibility of the employer to the employees. It has gathered all other required approval. Misa faced an impeachment motion in parliament on Monday over the planned move, but the liberal opposition could not gather a majority of votes.

“The wages law can be applied without any problems,” Misa told journalists. “When we came up with transferring the social contributions from employers to employees in our governance program we thought of all fiscal requirements and there will be no negative effect over the wages law,” he added.

Dragnea and Tudose also defended the new Fiscal Code by saying that the union leaders did not understand the new measures and that, in fact, they believed salaries would increase.

“No businessman who has good will would use these changes to cut salaries,” Dragnea said last Thursday.

Tudose also said that the unions follow “crooked logic by starting from the premise that we’re going to close down the country.”

But according to Romania’s Fiscal Council, the new tax measures will lead to a drop of a billion euros in budget revenues and the uncertainty will incur major risks to the economy. Employers should increase gross wages by at least 20 per cent to compensate for the transfer of social contributions from employers to employees. However, they are not legally obliged to do this.

Liberal MP and economist Florin Citu, who has been one of the most vocal critics of the new Fiscal Code, stated on his Facebook account that he believes the PSD is activating a ticking time bomb with the new legislation.

The Social Democrats, who hold a majority in parliament, passed a unitary wage law in July increasing wages for the public sector starting January 1, 2018. Citu said that the effect of increasing salaries in 2018 would cost Romania a 5 percent drop in GDP, and, in order to make up for that loss, the Social Democrats came up with the idea of transferring responsibility for social contributions from the employers to the employees causing salaries in the public sector to remain the same or even drop.  

“These Fiscal Code changes will cost private companies a lot of money; money they could use for investments or wage hikes. Now, they will have to spend it on new software for paying wages and for the split VAT,” he pointed out. 

The Social Democrats are also under fire for trying to pass a justice reform bill that threatens the independence of prosecutors, despite a massive mobilisation of magistrates and civil society against the move. 

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