Tanasescu: Budget can sustain tax cuts

The Government has concluded the supplementary letter of intent for the agreement closed with the International Monetary Fund (IMF) at the beginning of July. The main issues concern the second budget adjustment (which will trigger a 12,000bn ROL increase in spending) and the draft budget for 2005, which aims at deficit of less than 2% of the Gross Domestic Product, Finance Minister Mihai Tanasescu told Ziarul Financiar.

According to Minister Tanasescu, the Fund’s delegation eventually agreed that the budget could carry the strain entailed by significant tax cuts (mainly the reduction of profit tax from 25% to 19%, but also income tax cuts). In the assessment drafted when the agreement was discussed, IMF representatives had spoken against tax cuts other than those with regard to social security contributions. Furthermore, the authorities in Brussels were reluctant to accept the six-percent cut to profit tax.

“Our main argument was the exceptional increase in the collection of taxes, coming from VAT (following the increase in consumption), from excises, and from profit tax. This allows us to operate a second budget adjustment enabling us to increase spending by 12,000 billion ROL,” Mihai Tanasescu maintained.

According to the Finance Minister, the additional revenues are in excess of 12,000 billion ROL, so that the budget will still have a financial reserve that can help keep inflation under control and maintain macroeconomic stability.
razvan.voican@zf.ro