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Dumitru (Reiffeisen): Salary cuts like in 2010 are not possible; the solution is to increase the tax collection degree
Salary cuts like the ones applied in 2010, tax increase or decrease will not solve Romania's budget problem, the solution being the increase of the tax collection degree, through the digitization of public administration, said Ionut Dumitru, the chief economist of Raiffeisen Bank and former president of the Fiscal Council, on last Thursday.
“This year we have a crisis, there are big deficits throughout Europe. But there, when the crisis is over, deficits are adjusted by themselves. In Romania they do not. Without a basic decision for next year, there will be a deficit of about 8% for 2021. Therefore we need a deficit reduction. The suggestions we see in this respect in the public area, of massive increase of budget expenses or tax reduction, may not be clear to everyone, they have no correspondence to reality, in conditions in which we must have fiscal consolidation and there is not alternative to that,”said the economist at an online debate.
In this context, we need a plan of fiscal consolidation for several years, in order to avoid big effects on economic growth, he considers.“Tax increases would be a certain recession recipe. The major problem is one is collection. There are examples of countries around us which succeeded to bring 2-3% of GDP at a 2-3 year horizon, which would be a breath of fresh air for the budget. At the same time, we will not reduce taxes. What taxes could we reduce? We have the lowest taxes in EU, except for health insurance,” Dumitru added.
According to him, a significant increase of pensions and salaries is no longer possible and it would be better they grew slower than GDP.
Dumitru also said that this year, the budget deficit of the country could reach 9-10%.
“The main problem of this deficit is a structural one. Social expenses are very high, the social invoice, that is salaries and social assistance, have reached 97% of overall tax income, which is not good and is a first in our history,” he continued.
Thus the Romanian authorities' maneuver space, concerning the support granted to the economy affected by the pandemic, is lower than in other European countries.