President rejects Fiscal Code as unsustainable

Newsroom 17/07/2015 | 15:47

President Klaus Iohannis rejected the new Fiscal Code and returned it to Parliament to be reanalyzed, arguing that budget implications must be carefully considered, as shown on the Presidential Administration page.


“We support easing and simplifying the fiscal system by reducing certain taxes while the premises are insured for fiscal consolidation and predictability. From this perspective, we believe that the new tax code may be implemented only after a rigorous and thorough analysis of the implications of the whole set of fiscal and budgetary measures on building the general consolidated budget, both for 2016 and for future years and only in compliance with the obligations assumed by Romania and the domestic laws concerning financial and budgetary discipline “, says the review request.

“The mere tax cuts not accompanied by continued growth in revenue collection and a sustainable resettlement spending, for a more rational spending of public money, can lead to the accumulation of imbalances that will strike on future economic and social developments,” the statement goes on to say.

In terms of sustainability, the President shows that, in its present form, the Fiscal Code has a number of internal and external risks. Internally, the risk is for Romania to return to a “pro-cyclical fiscal policy” that result in “unsustainable economic growth and massive imbalances in recession.” Another risk is posed by “neglecting budgetary priorities assumed by political consensus, such as the aim to increase defence budget to 2 percent of GDP by 2017″.

Externally, risks and vulnerabilities are posed by the actual European context, where the situation in Greece creates major concerns and imbalances, not only concerning the EUR, but also external markets that might register falls.

“In this context, the risk of funding could significantly increase. We also want to note that promoting an economic model focused on consumption growth at the expense of investment could outbid the contribution of consumption to economic growth and, in addition, it may also affect competitiveness and Romania’s external balance. Not lastly, the current fiscal budgetary scenario could affect the target explicitly assumed by the Government on joining the Eurozone,” further states the realease.

In a later statement, presidential adviser Cosmin Marinescu has motivated the President’s decision to reject the new Fiscal Code in that it would have had major implications to the budget of 2016, but the Government had not presented a plan to reduce public expenses also.

He went on to underline the President’s idea that for fiscal easing policies to be sustainable, the entire budgetary policy must be analysed. Marinescu stressed the need for caution and the need for compensatory measures to reduced taxes, adding that the normative act was also rejected by the International Investment Fund.

The new Fiscal Code and Fiscal Procedure Code has passed the Chamber of Deputies with 309 votes for, two votes against and one abstention. The main change it brought was the reduction of the general VAT level from 24 percent at present to 19 percent starting January 1, 2016.

Other changes included cutting the VAT level for food products to 9 percent, the elimination of the EUR 0.07 excise tax for fuels, the elimination of the tax on special constructions and an increase in local taxes.

Natalia Martian

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