The winners and losers of Romania’s “fiscal revolution”: almost one in five employees lost or didn’t gain purchasing power over the last 12 months

Tens of thousands of Romanian employees have lost purchasing power in the last year as a consequence of both limited wage increase and high inflation, and more than 800,000 maintained the same purchasing power, according to official data analyzed by Business Review.

In March, the annual inflation rate, an index used worldwide to measure both price increases and the depreciation of money, rose to a five-year record of 5 percent in Romania, from 4.7 percent in February, according to the National Institute of Statistics (INS).

Recent data also shows that the average net monthly earnings in Romania grew by 11.2 percent year-on-year in February, to RON 2,487 (EUR 534), but real wages increased by only 6.2 percent during the same period, due to the high inflation rate (4.7 percent in February, year-on-year).

However, detailed statistics indicate huge differences between sectors in terms of wage increases and purchasing power gains between February 2017 and February 2018.

Tens of thousands of Romanians working in three particular sectors of the economy – “mining support service activities”, “other mining and quarrying” and “printing and reproduction of recorded media” –  lost purchasing power in February 2018 compared to February 2017.

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Employees’ net monthly earnings declined by 0.04 percent year-on-year in February in “mining support service activities” and by 0.03 percent in “other mining and quarrying”, while wages in “printing and reproduction of recorded media” increased by only 2 percent in 12 months, having lost 3 percent of their purchasing power.

The latest official data regarding the number of employees by sectors shows that the total number of employees was 4.88 million in January 2018, and the three sectors where workers lost purchasing power have about 30,000 employees in total.

In four sectors of the economy, close to 830,000 employees (around 17 percent of the total workforce) maintained their purchasing power during the last 12 months, recording wage increases of 5-6 percent.

Employees in education (355,800 in January) saw a wage increase of 5 percent between February 2017 and February 2018, while in “health and social work activities” (382,000 employees), earnings grew by 6 percent during the same period.

Employees in the “extraction of crude petroleum” (around 25,000) sector and “natural gas and financial activities” (around 70,000) saw their earnings increasing by 5-6 percent, meaning flat real earnings.

But around 4 million employees in Romania gained purchasing power during the last year, official data show. The fastest growth rates of net wages were recorded in “mining of metal ores” sector (+28 percent), “manufacture of tobacco products” (+25.5 percent) and “manufacture of coke and refined petroleum products” (+22.2 percent).

The Fiscal Revolution

Last year, the PSD-led government promised a “fiscal revolution”, announcing several important tax changes for taxpayers.

From the beginning of this year, income tax dropped from 16 to 10 percent and the social security and social health insurance contributions paid by the employer were transferred to the employee.

Union’s representatives criticize the goverment’s decision.

“If we look only to the transfer of the social contributions, this means an increase of taxes paid by the employees. Last year, if you had gross earnings of RON 100, your net wage was RON 71. Now, at RON 100 gross wage, your net wage is only RON 56. In the future, structurally, at the same gross wage offer from the employers, the net wage will be lower,” Bogdan Hossu, leader of Cartel Alpha union, told Business Review.

The effect of these fiscal changes was a sudden surge of gross wages, from RON 3,662 (EUR 790) in December to RON 4,143 (EUR 891) in January, according to official data.

Gross average monthly earnings declined slightly in February to RON 4,128 (EUR 887).

But the net earnings’ growth rate slowed from 11.7 percent year-on-year in December 2017 to 8 percent in January, a sign that the “fiscal revolution” had little or mixed impact on real earnings in Romania.

“It is unpleasant that most employees didn’t feel the reduction of the income tax from 16 percent to 10 percent. This tax cut was used by employers and not by employees,” Hossu said.

Worse still, inflation surged in the first months of 2018 to five-year record levels (5 percent in March), cancelling out a part of the wage increase.

In January, real earnings in Romania increased by only 3.5 percent year-on-year – the slowest pace in years. The real growth rate of wages inched up to 6.2 percent in February.

The highest net monthly earnings were recorded in February in the IT sector (RON 6,134, EUR 1,318) and in airline transport (RON 5,079, EUR 1,091) and the lowest in accommodation and food service activities (RON 1,499, EUR 322).

Romania has the second lowest average wage among European Union member states, after Bulgaria.