Tariceanu wants to cut labour taxation

The social security contributions paid by employees could be cut by up to 6% next year, Prime Minister Calin Popescu Tariceanu said yesterday.
“We decided a priority for 2008 is an up to 6% cut of the social security contribution each employee has to pay,” the Prime Minister stated. He added it was best for the money to stay with “active citizens” than be collected for the public budget.
“More money at home for the active citizens means both an improvement in the standards of living and a premise for economic development on a much healthier basis than if this money stayed with the state. Because more money is available to the most important economic operator – the citizen, a significant increase in savings and investments will entail,” Tariceanu stated, explaining the Government’s intentions.
At present, the social security contributions (CAS), which are used to pay the pensions for the about 4.7 million retired people, account for 29% of the gross salary. Out of this 29%, the employer pays 19.5% and the employee 9.5%. The 6% cut in the contribution made by employees would see each taxpayer keep almost 12% of the net salary.
Therefore, in case of a total gross salary of 4,080 RON (1,200 euros), which translates into a net salary of 2,171 RON (639 euros), the amount that the taxpayer retains is 76 euros.
“As with any tax cut, this will come as a welcome step,” comments Gabriel Biris, a tax lawyer and partner of Biris Goian law firm. He says the payment obligation of the social security contributions is the main reason why many large salaries are not officially registered and are paid in various other ways in order to avoid paying tax contributions.
Normally, social security contributions are paid for each employee that has a legal employment contract. Other than social security contributions, healthcare contributions worth 12.5%, unemployment contributions worth 3% and other contributions have to be paid – totalling 46.75% of a gross salary.
While the basis for computing the social security contributions is capped at five times the average gross wage in the economy (that is 1,870 euros), the other contributions are not capped, which tempts employers to avoid paying them altogether.
“It’s simply a rip-off to have to pay the healthcare contribution of 12.5% of the gross salary, regardless of how much you earn and get exactly the same medical services,” Biris added.
Early this year the Government cut the total level of social security contributions by two percentage points, taken from the payment obligation of the employers.
Gabriel Biris says the Governments’ decision to cut social security contributions made by employees and not those made by employers is a first in the last three years. Meanwhile, the Government has cut the social security contributions made by employers twice, as well as other contributions by a total of four percentage points.
The representatives of the Association of Business People in Romania (AOAR) yesterday demanded a faster-paced labour taxation reduction, by cutting the social security contributions by six percent as soon as by the second half of this year. They said it should be a governmental priority, which would help stimulate the development of private economy.