Cutting social contributions will boost Romania's competitiveness, says AmCham

Lowering social security contributions (CAS) by 3 to 5 percent for both employers and employees could improve Romania’s economic competitiveness according to the American Chamber of Commerce in Romania (AmCham), which wants this measure to be implemented as soon as possible.

AmCham adds this move reduces the tax burden for companies, bringing in more jobs.

“The investors, local and foreign, need to see further concrete decisions taken by the Government to foster the economy. By cutting social contributions, the employers and employees will benefit of lower taxation levels, thus being provided with higher disposable income,” says Alexandra Gatej, president of AmCham Romania.

Gatej says this measure will have a rippling effect in the economy, as increased consumption will improve the labor market and revenue to the state budget.

The Romanian Government is currently waiting for the economic performance of Q1 2012 to decide if it cuts taxes or increases wages in the public sector, and the premises are not good.

“In the first quarter of 2012 there will be a decrease against the previous one, Q4 2011, and the economy could slip into technical recession,” finance minister Bogdan Dragoi told a conference last Friday.

Romania’s economy has already decreased by 0.2 percent Q3/Q4 last year, and the bad weather that engulfed Romania for almost one month will hamper growth as well.

President Traian Basescu said earlier this week that wages for public workers should be returned to levels prior to the austerity cuts in 2010, when a 25 percent cut was made. The measure was temporarily and 15 percent have been returned since then, and this year should another 15 percent should be added to wages. President Basescu said around 200,000 public sector jobs have been cut since April 2009, and expenses for wages in the public sector have been lowered to 7 percent of GDP at end-2011, from 9.6 percent in 2009.

Prime minister Mihai Razvan Ungureanu, who supports a reduction of social contributions, said this week that all options are on the table and the economic results of Q1 2012 will play a crucial role in the final decision.