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Mugur Isarescu: Romania will probably increase taxes

Romanian National Bank (BNR) governor Mugur Isarescu believes that increasing taxes would only deepen the economic recession and that it would be an ineffective method to reform expenditure.

'Increasing taxes would only exacerbate the recession, both by reducing consumption, as well as by discouraging investments. Such an increase would be ineffective in the absence of spending reform and it should be preceded by extending the tax base through eliminating exemptions, 'said Isarescu on Wednesday.The BNR official drew attention that a tax increase would also require a rationalization of expenditure.'Romania will probably increase taxes, at some point, but before there is need of a rationalization of spending. Increasing taxes is a temporary solution. We should not ask from Romania more than it is in its power,' said Mugur Isarescu.

Romania's Government deficit tends toward 10pc of GDP

Romania's Government deficit was 8.3 percent of the Gross Domestic Product (GDP) in 2008 and it is tilting toward 10 percent, according to data presented on Wednesday by Governor of the National Bank of Romania Mugur Isarescu at a financial forum in Bucharest.Romania's external deficit dropped in 2009 to 4.5 percent of the GDP from 13.4 percent in 2007.

'As regards the correction of disbalnces in an orderly fashion, the external deficit narrowed from 13.4 percent of the GDP in 2007 to 4.5 percent of the GDP in 2009. At the same time, the official forex reserves increased from 25 billion euros in March 2009 to 32.4 billion euros in April 2010. The Government deficit was 8.3 percent in 2009 tending toward 10 percent. A budgetary correction is inevitable,' said Isarescu. He added that the short-term debt of Romania, preponderantly private debt, diminished from 20.6 billion euros in December 2008 to 14.6 billion euros at end-2009.

Economic policies were inappropriate

Romanian National Bank (BNR) governor, Mugur Isarescu, on Wednesday said that in Romania the economic policies were inappropriate, after the outburst of the economic crisis.'Ever since the crisis emerged, economic policies were inadequate. The economic and fiscal policies in Romania were pro-cyclical policies,' said Isarescu.

He showed that, in exchange, the monetary policy was anti-cyclical, with positive effects, but he explained that despite the measures taken by the central bank, bankers have still found solutions to give loans, outsourcing loans and they even gave credits in foreign currency. Isarescu underlined that the monetary policy was not enough as anti-cyclic measure and underlined that the structural policies have been postponed in Romania after EU entry, which was a mistake.The governor drew attention to the easiness showed by some circles as regards the budget deficit issue. Mugur Isarescu participated in the 2010 Financial Forum, held in Bucharest.

Romania has no financially sustainable social programme

Romania has no financially sustainable social programmes, as the legislation in the field of social security discourages economic initiative and encourages tax evasion, Governor of the National Bank of Romania (BNR) Mugur Isarescu said on Wednesday, at the Financial Forum in Bucharest.'We have social programmes that are not financially sustainable. We highlighted that Romania should no more be pulled at because it risks collapsing. The legislation in the field of social security discourages economic initiative and ecourages tax evasion,' said Isarescu.According to a report presented by the BNR official, the social security budgets are highly unballanced. 'The ratio of contributors to the social security fund to the social pension beneficiaries has continued to deteriorate, from 2.2 payers for a beneficiary in 1990, to 0.8 payers for a beneficiary in 2009. The numbers are dramatic,' said Isarescu.

Romania's short-term external debt has reached 20 billion euros

Romania has over the past years recorded economic growth that was greatly sustained by the accumulation of misbalances, when the short-term external debt of Romania reached 20 billion euros, Governor of the National Bank of Romania Mugur Isarescu told a financial forum in Bucharest on Wednesday.

'Romania had ten years of economic growth, from autumn 1999 to 2008, but this economic growth, particularly after 2003, was mainly the result of accumulating disbalances, many of them unsustainable. The current-account deficit used to stand at 12-14 percent of the Gross Domestic Product (GDP) in the time before the crisis broke out, and there was a huge deficit boosted by the influx of private capital, particularly after accession to the European Union in 2007, that had to be rectified especially by the cyclical movement of international capital,' said Isarescu.

He also said that Romania had large structural deficits, even when, for instance in 2007, its Government deficit was just 2 percent, structural deficit was nearly 5 percent and the Government counted on revenues derived during the overheating of the economy.

Isarescu said that when the global economic crisis erupted, the revenues collected by the Romanian Government was 30-32 percent of the GDP, which was a huge tax burden on taxpayers, that is the population and companies.'Despite the stated wishes, some times repeatedly that we would have Government revenues of nearly 40 percent of the GDP if we adjust the tax system, never, I mean absolutely never once in the 10 years were we able to collect more than 30-32 percent. Probably much happened, even too many tax adjustments, which reveals certain instability and failure to get to the root of the problems,' said Isarescu.

Tax System Hampered By Exemptions

Romania's fiscal system is 'shredded' because a long list of tax exemptions that eat away at the budget revenue, central bank governor Mugur Isarescu said Wednesday.Speaking at a financial forum in Bucharest, Isarescu said the authorities' decision not to levy taxes on the land owned or to tax it insufficiently has contributed to the real estate boom in the recent period.'In 2000, I recommended that land be taxed. I was told it wasn't possible, because it was an election year,' Isarescu said. 'Not taxing land was one of the reasons for the real estate boom.'The central bank's chief said Romania's tax system is inefficient and the untaxed areas amount to some 20%, even 25% of the gross domestic product.

The budgetary correction is unavoidable

Romania's recession is low because the fiscal space to push the economy is low, Romanian Central Bank Governor Mugur Isarescu declared. He appreciated that the budgetary correction measures will be difficult and painful from a social point of view. The illusion that we can find solutions to a higher budgetary deficit is wrong: an increase in taxes is inefficient if budgetary spending is not decreased.The economic growth Romania witnessed in the last years was based on unsustainable disequilibrium, Isarescu said. The deficit was huge, stimulated by capital entries and the crisis taught us that these disequilibrium needed to be corrected.

Sursa: http://www.actmedia.eu

Tags: romania isarescu bucharest forum percent billion financial budgetary social crisis policies deficit euros romanias national taxes increase probably bnr governor mugur wednesday economic would government

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