EU to request Government to raise taxes and cut spending

Next week, the Finance Ministers in the European Union will request that Romania should consider increasing some taxes to boost the revenues of the state budget, in order to encourage investments, in view of EU accession, Bloomberg reports.

Ministers believe the introduction of the flat tax at the beginning of last year makes it harder to cover the expenditure that joining the European Union will entail, as shown in a draft report Bloomberg received and published on Tuesday night.

At the same time, lowering taxation could cause a significant deterioration of the public finance situation, if the current favourable cyclic conditions come to an end.

The flat tax of 16% enforced on January 1, 2005, replacing the 25% profit tax for companies and a system with brackets varying from 18% to 40% for taxing individual incomes.

The level of revenues of the state budget as a share of GDP is currently lower than in any of the EU member states.

The International Monetary Fund, whose recommendations the European Union takes into account, believes that Romania needs to boost its budgetary revenues to 35% of GDP, from the level of 29.7% in 2005.

At the same time, Finance Ministers in the EU member states will recommend cutting expenses, in order to curb budget deficit.

The Government last week upped the budget deficit target from 0.5% to 0.9% of GDP to increase spending on investment and social projects.

“The credibility of Romania”s spending policy depends on adoption of more prudent measures for budget-paid personnel wages, on the capability to reduce current spending and on improving the capacity to absorb European funds,” the EU document shows.

The Government has announced plans to increase the budget-paid personnel”s salaries by 11% this year, after a 50% raise last year. adriana.iacob@mediafax.ro