Flat tax: lower taxes, same revenues

The consolidated budget revenues increased by more than 5% in 2005, thus attaining 99.4% of the revenue target set in the Budget Law. The flat tax showed in its first year of application that it is possible to maintain the level of revenue despite lower taxes. Although leaving the population and companies with an extra one billion euros on their hands due to the income and profit tax cuts, the flat tax helped most of this money get back to the budget following a boom in consumption. Seventy percent of the total budget revenues were made-up of indirect taxes: VAT and excise and customs duties, which means the budget has grown more and more dependent on the increase in consumption. Consolidated budget revenues amounted to nearly 22.5bn euros, that is 30% of GDP. “The economy and the budget rely on consumption and the stimulation of consumption by introduction of the flat tax eventually led to missing all the macroeconomic targets, such as inflation, or current account or even the economic growth,” Liviu Voinea, analyst with the Applied Economics Group told ZIARUL FINANCIAR. Inflation will exceed 8.5% in 2005, although the first estimate this year pointed to 6%, while the trade deficit will reach 8.1% of GDP, despite the initial estimate of 6.6% and the economic growth will be some 4% compared with the 6% as the first estimate this year. ZF