Fondul Proprietatea: The proposed fiscal measures are a ticking bomb for the Romanian economy

Fondul Proprietatea is highly concerned by the draft Government Emergency Ordinance (“GEO”) regarding fiscal and budgetary measures, published on 18 December 2018 by the Ministry of Finance. In Fondul Proprietatea’s view, the dire consequences of the proposed measures will be the following:

• The Pillar II Private Pensions risk to be destroyed and the sustainability of the future pensions will become uncertain. This specfic measure can have significant impact on the Romanian capital market, whose growth has been steadily supported by the private pensions funds in the last years. If passed, this measure would indefinitely delay Romania’s upgrade to the Emerging Market status.

• Capping gas prices at 68 RON /MWh blatantly contradicts already approved Romanian legislation, as well as Romania’s obligations as European Union member state to observe the free market principles and liberalise the gas market. Romania’s energy independence will be put at significant risk and the country may have to rely on external sources of gas at higher prices that the Government will have no control over.

• The 3% tax of turnover for energy companies risks to lead to the insolvency of a number of these companies and subsequent layoffs. This would seriously endanger the security of the entire energy system in Romania.

Commenting on the draft GEO, Johan Meyer, CEO of Franklin Templeton Investments Limited and Portfolio Manager of Fondul Proprietatea said: “If adopted, the proposed measures will have significant negative effects that will cascade over the entire Romanian economy, will jeopardize future growth and will isolate Romania from the international business environment. Moreover, many of the proposed measures will be borne by end consumers, due to increased energy prices and costs of credit. For measures that have so far-reaching effects, the predictibility and transparency of the legislative process is vital, as well as considering very carefully their financial and economic impact. We are practically sitting on a ticking bomb and we urge the Government to defuse it urgently by withdrawing the draft of GEO.”

Johan Meyer further added: “If we consider the massive value destruction on the Bucharest Stock Exchange following the publication of the draft of GEO, this certainly raises the question whether the Government will lose more in the value of its own listed companies compared to the taxes it stands to get. The state will also get lower dividends from these companies, which further indicates that these proposed measures are a double-edged sword.”
Fondul Proprietatea calls on the Government to take into account the disastrous consequences of these measures and subsequently withdraw the entire package of measures. Fondul Proprietatea recommend that any future proposals be made after appropriate and transparent consultations with the entire business environment and social partners.

AmCham Romania: Stop the assault on the economy!

The American Chamber of Commerce in Romania (AmCham Romania) calls for the immediate withdrawal of the draft Government Ordinance on new fiscal measures announced by the Minister of Finance on December 18 and aimed for implementation starting with January 1st, 2019, a release posted on Wednesday its website reads quoted by romaniajournal.ro.

We consider that the proposed measures as well as their adoption manner to be irresponsible and reckless, throwing the market into a complete chaos, as confirmed by the first responses on the capital markets which indicate a steep erosion of investors’ confidence within hours from the announcement. 

We reiterate the call for observing the legal framework regarding transparency in decision-making and public consultations, the release concludes.

Earlier on Wednesday the Coalition for Romania’s Development (CDR), representative for the business environment, has issued a communique warning that the avalanche of the fiscal-budgetary decisions announced Tuesday evening will have significant impact on the entire economy, it is unacceptable and is the symbol of the fracture between the governance and the companies.

Finance Minister Eugent Teodorovici announced on Tuesday that banks will be differently taxed, according to ROBOR (Romanian Interbank Offer Rate). The higher the index is, the higher taxes will be, says the new tax, called “the tax on greed”.

The FinMin announced this measure among other several fiscal measures envisaged for 2019, such as the EUR 10 billion investment fund, the decrease of taxes in constructions, but also the controversial decision to take the “vice tax”, which encompasses money normally intended for the investments in hospitals and to the big healthcare programmes to counter chronic diseases, and redirect it to the state budget to cover for the state employees’ salaries and for other expenses in the central administration.

He also announced the capping of the gas price for a three-year period: RON 68 megawatt/hour. The measure will apply until February 28, 2022.

In the case of Pension Pillar II: Funds can invest in public-private partnerships; administration fee drops from 2.5% to 1%; the second commission of 0.05% of the assets changes according to the fund’s performance; a person may withdraw the money, but not earlier than 5 years, and the withdrawal fee is 2% of the assets.

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