Flat tax needs to be joined by general reform

The flat tax will boost economic growth, consumption and investments, but has to be accompanied by administrative restructuring and included in a package of general reforms linked to the taxation system.

“The flat tax will be reflected in economic growth because it will stimulate private investments and population consumption. It is important that we do away with all this bureaucracy, but it mainly supports labour,” said Lucian Liviu Albu, head of the Economic Prognosis Institute of the Romanian Academy.

An increase in budget revenues following the tax cuts will be felt during the second half of the year, not sooner. The government will not encounter big problems in covering the deficit that will result at the level of the state budget following lower taxation, Albu feels, because, if needed, it could even borrow from the international markets. “As taxes are being cut, administrative activities need to become more efficient, so that expenses should be cut down, as well,” stated the director of the Prognosis Institute.

The gap created in the general consolidated budget by the reduction of profit and income taxes to 16% would come to about 32,000 billion ROL (800 million euros), half of which will be covered as taxes for micro-enterprises will double and the contribution quota to the social security budget will remain unchanged. Revenues to the state budget for 2005 are forecast to reach 357,244 billion ROL (8.9 billion euros).

Tudor Moldovan, deputy director with Generali insurance company, feels that the results will be seen in time. “The outlook is positive. Savings derived from lower taxes can be invested and new jobs will emerge. Taxation changes will have to be thorough and correlated with other measures. A coherent legislative package is needed, and not a mere point-by-point modification of the Fiscal Code”.

Income globalisation was introduced by the same political structure in 1999, a measure grounded at that point on European Union integration and the need to do away with discrimination between taxpayers.
sorin.pislaru@zf.ro