Fondul Proprietatea: The proposed fiscal measures are a ticking bomb for the Romanian economy

Fondul Proprietatea criticizes the measures proposed by the Government showing that the consequences will be devastating for the economy, with negative effects that will cascade over the entire economy and jeopardize the future growth.

Fondul Proprietatea is highly concerned by the draft Government Emergency Ordinance (“GEO”) regarding fiscal and budgetary measures, published on 18 December 2018 by the Ministry of Finance. In Fondul Proprietatea’s view, the dire consequences of the proposed measures will be the following:

The Pillar II Private Pensions risk to be destroyed and the sustainability of the future pensions will become uncertain. This specific measure can have significant impact on the Romanian capital market, whose growth has been steadily supported by the private pensions funds in the last years. If passed, this measure would indefinitely delay Romania’s upgrade to the Emerging Market status.

Capping gas prices at 68 RON /MWh blatantly contradicts already approved Romanian legislation, as well as Romania’s obligations as European Union member state to observe the free market principles and liberalise the gas market. Romania’s energy independence will be put at significant risk and the country may have to rely on external sources of gas at higher prices that the Government will have no control over.

The 3% tax of turnover for energy companies risks to lead to the insolvency of a number of these companies and subsequent layoffs. This would seriously endanger the security of the entire energy system in Romania.

Commenting on the draft GEO, Johan Meyer, CEO of Franklin Templeton Investments Limited and Portfolio Manager of Fondul Proprietatea said: “If adopted, the proposed measures will have significant negative effects that will cascade over the entire Romanian economy, will jeopardize future growth and will isolate Romania from the international business environment. Moreover, many of the proposed measures will be borne by end consumers, due to increased energy prices and costs of credit. For measures that have so far-reaching effects, the predictibility and transparency of the legislative process is vital, as well as considering very carefully their financial and economic impact. We are practically sitting on a ticking bomb and we urge the Government to defuse it urgently by withdrawing the draft of GEO.”

Johan Meyer further added: “If we consider the massive value destruction on the Bucharest Stock Exchange following the publication of the draft of GEO, this certainly raises the question whether the Government will lose more in the value of its own listed companies compared to the taxes it stands to get. The state will also get lower dividends from these companies, which further indicates that these proposed measures are a double-edged sword.”

Fondul Proprietatea calls on the Government to take into account the disastrous consequences of these measures and subsequently withdraw the entire package of measures. Fondul Proprietatea recommend that any future proposals be made after appropriate and transparent consultations with the entire business environment and social partners.