Romanian govt follows in Hungary’s footsteps and introduces 0.9 pct "greed tax" on banks' assets, caps gas prices - full list of measures

The Romanian government follows in Hungary’s steps and will introduce a tax on bank assets of 0.9 percent from January 1^st, 2019 and will cap the retail and corporate gas price at RON 68/Mwh, Finance minister Eugen Teodorovici said on Tuesday evening, in a press conference.

UPDATE: The full list of measures announced by the Finance minister:

Pension Pillar II – management fee reduced 2.5 to 1 percent; contributors will be able to take their money out at any moment after five years of contributions at a fee of 2 percent of their assets; funds will be allowed to invest in public-private partnerships; the second fee of 0.5 percent of assets changes based on the fund’s performance;
Gas price to be capped for three years at RON 68 per megawatt/hour;
Vice tax (currently collected and used by the Health Ministry) will go straight into the state budget then be redistributed towards healthcare, culture, etc.;
Development and investment fund will total EUR 10 billion and will be used by local authorities to fund projects related to healthcare, education, water and sewage systems, electricity and gas, roads, culture, sports infrastructure. No local authority will be able to apply for more than two projects at the same time, and universities can also apply;
Public-private partnership fund at the Government General Secretariat (Prognosis Commission) level for public institutions entering PPPs;
Spa resorts programme, financed from the budget of the Prognosis Commission – RON 310 million in 2019, with a maximum of EUR 200,000 per project;
gROwth programme: building 1,000 kindergartens with a budget of up to EUR 500,000;
Pension point to be raised to RON 1,265 from September 2019;
Salaries in the education sector will grow in September 2020 by amounts that had been planned for 2022 in the salary law;
Holiday vouchers will continue to be awarded to public sector workers, with a value of RON 1,450;
Finance Ministry can approve monthly limits for commitment appropriations for credit authorising officers financed fully from the state budget and can change the limits where necessary;
State companies will deliver, within 60 days from the date of approval of their 2018 financial statements, 35 percent of their unused investment funds, as dividends or payments to the state budget;

Visibly stressed during his presentation and refusing to answer to reporters’ questions at the end of his long speech, Teodorovici presented the new tax on bank assets as a “tax on greed.”

“Banks pay 2 percent interest rate, on average, for savings but take 8 percent for loans,” the minister argued.

According to his speech, the so-called “tax on greed” will depend on 3-month and 6-month ROBOR levels, being between 0.2 percent of assets for ROBOR rates between 1.5 and 2 percent, 0.4 percent for ROBOR between 2 and 2.5 percent, 0.6 percent – 2.5-3 percent – and 0.9 percent – between 3 and 3.5 percent.

ROBOR maintained above the 3 percent in Romania during most part of this year as inflation rose to the highest level in the EU so banks will have to pay a 0.9 percent-tax on assets if the measure is imposed since the beginning of next year.

Romania follows in this aspect Viktor Orban’s policies in Hungary, whose government introduced a similar tax on bank assets in 2010.

ROBOR, the main indicator that sets the interest rates for RON currency borrowers, depends mainly on inflation rates, which rose to more than 5 percent this year mainly due to government’s inflation-boosting policies.

A recent BR Analysis showed that Romania’s major banks have posted impressive profits in the first nine months of this year as their interest income, related to rising interest rates on loans in a moment when inflation peaked, significantly increased.

These impressive interest income growth rates are mainly due to rising interest rates in the market this year as inflation reached 5-year highs in Romania of more than 5 percent, the highest level in the EU.

Higher inflation had an impact on Romania’s three-month money market rate (ROBOR), the main indicator that sets the interest rates for RON currency borrowers, which reached this year 4-year highs of almost 3.5 percent, compared with 2.05 percent at the end of 2017 or less than 1 percent in 2016.

During the last few years, the government has adopted a strategy of wage-led growth, stimulating household consumption and GDP growth rates, but this model has generated larger fiscal and current account deficits – as well as higher inflation rates.

The Finance minister also said that the government will cap internal gas price at RON 68/Mwh for retail and corporate domestic markets alike, arguing that retail price is now 3 times higher than production cost.

A similar project was already proposed this year but the project was withdrawn by the Finance ministry.

The two gas producers in Romania are state-owned Romgaz and Austrian OMV Petrom. Meanwhile, Fondul Proprietatea, the closed-end fund managed by Franklin Templeton, called this project an “ill-considered decision.”

Experts say that capping internal natural gas prices will hit hard the two main gas producers in Romania, Romgaz and OMV Petrom, and will limit investment in gas fields, while the advantages for retail consumers are only for short term.

EU competition legislation bans such practices and energy directives impose a liberalization of gas prices, which Romania had already done by April 2017.

If the proposal passes, Romania may risk infringement procedures by the European Commission.

Some experts also argue that such a measure will favour gas imports from Russia.

Households in Romania paid in 2017 the lowest prices for gas and the fifth lowest prices for electricity among the 28 European Union member states, according to Eurostat.

“The price per kilowatt hour of household gas is generally lower than the price of household electricity and in 2017 ranged from 3 cent (Romania) to 12 cent (Sweden),” Eurostat said.

Earlier in the day, opposition senator Florin Cîțu presented a draft of an emergency ordinance that introduces special taxes for companies operating in energy, retail, tobacco, alcohol and gambling and for banks in 2019, aiming to collect more money to the budget.

The government has not released until now a budget project for 2019 and many experts say it has no money to finance its soaring spending on public servants’ wages and pensions.

Romania’s general consolidated budget, which includes fiscal and social budgets of the government, registered after the first ten months of this year a deficit of RON 21 billion (EUR 4.5 billion), or 2.2 percent of estimated GDP, being 3.2 times bigger compared with the same period of 2017.

During his speech at the Social Democratic Party’s National Council on Sunday, party leader Liviu Dragnea launched a series of attacks against multinational companies, especially those in energy and telecommunications, as well as banks, and spoke once again about the idea of introducing a tax on their turnovers.

The Finance minister has confirmed on Tuesday that the government will freeze pensions and public wages until September 2019 as it has no money to finance wage and pension increases.

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