Romania can’t afford to cut CAS by 5 percent in 2017, Minister Dragu says

Newsroom 15/06/2016 | 11:59

Romania cannot afford to reduce social security contributions (CAS) by 5 percent in 2017, Minister of Public Finance Anca Dragu stated.

Following an assessment by the Ministry of Public Finance, the impact of reducing the CAS by 5 percentage points in 2017 was estimated at RON 7.7 billion, around 1 percent of the GDP. This week the Senate passed with overwhelming majority the draft law on reducing social security contributions by 5 percentage points.

“We have made an impact assessment,” Minister Dragu stated on Tuesday on the matter. According to the minister, “it is a very large amount and, for the 2017 budget, the budget deficit is pretty high. We must begin this process of gradual fiscal consolidation and there isn’t any room for such a big reduction in revenue,” Anca Dragu explained.

The Minister of Public Finance forecasted a budget deficit of under 3 percent for 2017, around 2.8 percent of the GDP on ESA. Given that the deficit for the current year stands at 2.95 percent, Dragu announced that the Government will decide on the matter after the final draft of the law on reducing CAS by 5 percent is revealed.

According to our assessment, the budget deficit for next year will stand at 2.8 percent, perhaps 2.85 percent, if we exclude the measure on the reduction of social security contributions by 5 percentage points, which is not included in the budget deficit for 2017,” Dragu said. The Minister of Finance also explained that the European Commission estimates show a slightly higher deficit than expected domestically, which stems from a difference in the economic framework.

On Monday the Senate adopted on Monday the draft law on reducing the CAS by 5 percent, with 2 points to be cut from the employer’s contribution and 3 from the employee’s share, respectively. The draft law was passed with a significant majority, namely 67 votes in favor, 23 against and one abstention. A Chamber of Deputies’ decision is expected to come in the fall.

Private sector experts also argue that the measure is untimely

However, the Government gave a negative opinion on the project and the Budget Committee rejected the proposal. The Government’s point of view is supported market players and independent bodies active in the sector.

According to Ionut Dumitru, president of the Fiscal Council, an independent body that aims to support Government and Parliament activity in the field, although a “just” measure, the initiative comes at the wrong time. “Unfortunately, at the moment, reducing the CAS, must be said very firmly, with a budgetary impact estimated at around RON 7 billion, it has no place in the budget. This is obvious to anyone, given that we already have a projection of over 3 percent for next year’s budget deficit, with the measures that are in force at the moment,” Dumitru stated. However, he does favor a reduction of the CAS over the “aggressive” cut of the VAT rate by another percentage point in 2017, if the budget allowed for such a measure to be implemented.

Private sector experts also warn that Romania risks a budget gap widening under the proposed CAS cut. Although positive from a competitiveness standpoint, ING financial experts argue, the country simply does not seem to have the fiscal room for such as measure at the moment. The public sector wage hikes and the tax cuts scheduled for 2017 under provisions of the Fiscal Code considered, experts estimate that the 2017 budget deficit will stand at -3.7 percent of the GDP, under a no-policy-change scenario. Should the cut on social contributions be implemented, and amid further tax easing, ING specialists forecast a 2017 budget deficit of around -5.0 percent of GDP. Moreover, the experts warn, such measures could have a negative impact on RON assets and overall on the country’s macro fundamentals on the medium term.

Georgeta Gheorghe

BR Magazine | Latest Issue

Download PDF: Business Review Magazine March (II) 2024 Issue

The March (II) 2024 issue of Business Review Magazine is now available in digital format, featuring the main cover story titled “BAT DBS Romania Hub: A Vibrant New Office For An Employee-Centric
Newsroom | 27/03/2024 | 17:32
Advertisement Advertisement
Close ×

We use cookies for keeping our website reliable and secure, personalising content and ads, providing social media features and to analyse how our website is used.

Accept & continue