High impact tax measures taken by Grindeanu government. Trap of repealing maximum threshold for CAS and CASS

de Razvan Diaconu | 8.1.2017 .

fiscalitateThe emergency ordinance by which Grindeanu government will increase some wages of the employees from the public service (salaries in administration, culture) will have a budget impact of – 5.13 billion lei in 2017, according to the draft emergency ordinance published by the Ministry of Finance.

On the other hand, according to some other changes of the Tax Code expected for Friday, the employees will owe contributions to the pension and healthcare system for the entire income, as the current threshold equivalent to 5 gross national average salaries has been repealed. According to the Government’s calculations, the measure will ensure additional budget revenues of 1.9 billion lei.

The entire additional revenue will be spent after 1 July, on the increase of the pension point.

To note: the draft budget prepared by Ciolos government is based on a budget deficit of 2.99% of GDP, without integrating the impact of the social measures promised by PSD during the election campaign, which started to materialize on Friday.

List of measures decided by the Government on 6 January

The Government meeting agenda from Friday included an emergency ordinance for increasing several types of incomes.

The measures planned by the Government include:

  • introducing free railway transportation for students
  • increasing the pension point to 1,000 lei
  • increasing student scholarships by rising the allocation per student from 83 lei to 201 lei
  • increasing the minimum pension from 400 lei to 520 lei
  • 20% wage increase for the local administration
  • 50% wage increase for actors and other artist categories

According to the document, the budget impact of all the measures from the ordinance is of 5,13 billion lei for 2017. The document does not include the budget impact calculated for the next years.

Minimum wage increases to 1,450 lei, threshold for microenterprises increases to 500,000 euros

The increase in the minimum wage to 1,450 lei, the increase of 20% of the wages from the local administration and the 50% wage increase for actors and other groups of artists have been announced the day before the Government meeting by the Chairman of PSD, Liviu Dragnea.

Grindeanu’s cabinet also adopts the tax cut to 1% of the turnover for the enterprises below the threshold of 500,000 euros.

I hope for both the President and the opposition to understand the signal given by the Romanians’ vote. Romanians voted to have a better life,” justifies Liviu Dragnea the social measures from the debut of Grindeanu government.

On the other hand, the employees, PFAs, and pensioners who also obtain dividend, interest, royalty, and rental income will be exempted from CASS for these incomes.

Eliminating maximum threshold for CASS and CAS – long-term effects

The issue of eliminating the maximum threshold of five national average gross salaries for pension and healthcare contributions is likely to cause very big problems for the public pension system in time.

For now, authorities estimate that will collect an additional revenue of 2 billion lei by repealing this threshold – a wrong calculation from several points of view:

  • first, in an extraordinary session, lawmakers voted on Thursday the CASS exemption for pensions – annual budget impact: – 745 million lei
  • secondly, the Government also exempted on Friday the employees and PFAs from CASS for the income from dividends, interest, royalties, rentals (unspecified impact of this decision)

It means, without any doubt, that the 2 billion that Sorin Grindeanu counted in the opening of the government meeting on Friday are at the best one billion.

In the long term, the issue is much more complicated: The pension budget has a deficit of EUR3.2 billion. Since the “liberalized” CAS contributions, those who pay now higher contributions should receive in the future pensions commensurate with their contributions.

By complementing the picture with the statistics from INS on the birth rate, analysing the clear trend of demographic aging, the long-term unsustainability of the measures summarized above becomes obvious.

Publicat la data de 8.1.2017 .

Lasa un comentariu


SIMILAR ARTICLES

Marin Pana

A grim picture: list of things we DO NOT know we can produce. What Romania imports from EU and from what countries. It is not too clear (or is it?) and why

Trade exchanges with the EU countries amounted last year to about EUR 43 billion in exports (75% of total exports) and almost EUR 52 billion in imports (77% of total imports) In terms of non-EU trade, exports amounted to EUR 143 billion (25% of total exports) and imports to EUR 154 billion (23% of total imports) Structure of foreign trade in 2016 (million euro) Export ...
Read more »

Mariana Bechir

Unitary pay law widens gap between salaries in public and private sectors. Risks

Increasing discrepancies between the wages in the public and private sectors will broaden inequalities between the two sectors and have serious effects on the labour market and the real economy, warn business community and trade unions leaders and human resources experts A forgotten lesson The unitary pay law, in the form presented by Liviu Dragnea, will broaden the salary gaps that have ...
Read more »

Mariana Bechir

Accelerated depopulation: Romania’s population has decreased by 74,050 people over last 12 months. Most prominent depopulation – in Teleorman

Romania’s population declined between March 2016 - February 2017 by 74,050 people The number is comparable to the population of a middle-sized city, a capital of a county like Alba Iulia, for instance (74,085 inhabitants) Romania's annual natural growth went, for the first time, below the threshold of -70,000 people: in the 12 months between the beginning of March last year and the end of ...
Read more »

Adrian N Ionescu

A paradox: Hunger of stockholder state to push Romania at top of world dividend yields ranking in 2017 as well

The dividends proposed to stockholders by the management of the companies listed on the Bucharest Stock Exchange (BSE) are very likely to place Romania also this year at the top of the world ranking of the yields of investments made for this purpose Bucharest's capital market ranked first last year among the world's highest average yields, according to a report by the German investment bank ...
Read more »

Dordia Tereza

Trade deficit, consolidated by negligence, reached EUR 1.3 billion. After only two months of 2017

  The trade deficit in the first two months of 2017 was EUR 1259 million, 27% higher than the same period of the previous year, according to the INS data The exports increased at a good pace (+ 92%, to EUR 9,7499 million), but have been outweighed by the imports that advanced by 109%, to 11,0089 million The import coverage ratio by exports still maintained a reasonable level (924%, ...
Read more »


NEWS

Romania to buy Patriot missiles - it will be the 13th country in the world that owns this defence system

The Chief of the Military Staff, General Nicolae Ciuca (photo), announced in a press conference on Thursday that Romania intends to buy American missiles Patriot, ... Read more

IMF has improved forecast for Romanian economy growth in 2017 and 2018: but far below Government’s calculations

The International Monetary Fund (IMF) has revised its estimates for the Romanian economy growth to 4.2% from 3.8% – previous estimate for this year, and ... Read more

BNR: Current account on surplus, but external debt increased in first two months of 2017

The balance-of-payments current account posted a surplus of EUR 204 million in the first two months of the year, compared to a deficit of EUR ... Read more

Finance Minister Viorel Stefan: Households to be recognized from tax perspective; their members will be able to jointly pay global tax

The Finance Minister Viorel Stefan announced on Wednesday that the future Tax Code will provide the option for a global tax payment on household income, ... Read more

Essential: Government adopted strategy for decentralization. Timetable and sectors

The Government approved on Wednesday the general strategy of decentralization, comprising the responsibilities that could be transferred to the local authorities and describing the way ... Read more

Chamber of Deputies members offer CCR judges super immunity, higher pensions and diplomatic passports

The Chamber of Deputies passed Tuesday by 178 votes “for”, 39 “against” and 51 abstentions, the bill that provides increased immunity to CCR judges. They ... Read more

Six R&D centres to be established in agriculture. They will receive subsidies

The Ministry of Agriculture and Rural Development (MADR) launched for public debate six draft government decision for establishing or reorganizing six R&D centres specialised in ... Read more

Enel Group paid Romania EUR 401 million imposed by Court of Arbitration in Paris

Enel Group paid Romanian state EUR 401 million, according to the decision of the International Court of Arbitration in Paris announced in February, according to ... Read more

Ionut Dumitru: Half of budget revenues to be spent on public sector wages in 2022. That is unsustainable

The state expenses on public sector wages will reach 12% of GDP in 2022, which means half of the revenues collected to the state budget, ... Read more

Average national wage fell below 500 euros in February. Unique case in EU: manufacturing sector, 12% below national average

The gross average national wage announced by INS for February 2017 was 3,108 lei, by 1.9% below the previous month. The net average national wage ... Read more

Court of Accounts/ 80% of procurement frauds occur in local government. Solution - establishment of Centralized Procurement Unit

The Court of Accounts verified last year nearly 2,700 public entities and identified 23,500 violations that caused a total damage of EUR 400 million. Of ... Read more

Completed draft laws: Changes in criminal codes - no minimum threshold for abuse of office. Law for integrating European Directive on extended confiscation

The draft law for amending the criminal codes will not include any minimum value threshold for the crime of abuse of office, and another draft ... Read more

"Worst of both worlds": Court of Arbitration in Paris decides that CNAIR should pay compensation to contractor of "sunken highway"

Photo: Narcis Neaga, appointed adviser to the current government, starred in the “Sunken highway” play The National Company of Road Infrastructure Administration (CNAIR) will bring ... Read more

Unusual letter: Major US corporations present in Romania ask Prime Minister Grindeanu to not deviate from rule of law

Representatives of several American companies handed over to Prime Minister Sorin Grindeanu, Wednesday, a “roadmap” containing provisions on the rule of law, transparency and efficiency, “that ... Read more

To the last drop: Government is also collecting dividends from what state companies earned in previous years

The Government has found a new source to finance the budget deficit, wages and maybe public investment. The profit obtained by the state companies and ... Read more

Budget implementation after two months: Ministry of Finance reports a surplus - what is behind it

The Ministry of Finance announced that, according to the current working data, the implementation of the general consolidated budget in the first two months of ... Read more

Debts of companies to suppliers in Romania maintain above 56 billion lei. Wholly Romanian-owned companies are most indebted

The outstanding payments of the companies to suppliers in Romania amounted to about 56 billion lei in 2016, compared to 56.5 billion lei in 2015 ... Read more

Romania competes for relocating European Medicines Agency to Bucharest. Argument: 14,000 Romanian doctors and pharmacists working in the EU

The Government approved on Wednesday a memorandum for Romania to apply for the relocation of the European Medicines Agency (EMA) to Bucharest, in the Brexit ... Read more

Three proposals from PIAROM for a real reform of technical and vocational education system

The Romanian Local Investors Employers – PIAROM calls on the authorities to quickly adopt concrete supportive measures for involving the private capital in the technical ... Read more

IMF mission concluded consultations in Bucharest – Government’s options

The IMF mission concluded Thursday a 7-day visit in Romania in the annual process of consultation under Article 4, after a small delegation came to ... Read more

Romanian leu depreciated to reach 4.5654 lei/euro, record level of last four and a half years

The reference exchange rate announced Friday by BNR was 4.5654 lei/euro, 0.3% more than the level reached in the previous session and a maximum level ... Read more

Liviu Voinea (BNR): 7,000 notifications on debt to equity swap, by February; loans amounting to 2 billion lei

The number of notifications registered under the Law on debt to equity swap reached to 7,000 at the end of February, representing total loans amounting ... Read more

Siegfried Muresan: Romania should make joining Schengen a condition to accept two-speed Europe

Member of the European Parliament Siegfried Muresan (photo) said in Strasbourg that the idea of a multispeed Europe is not wrong altogether, and Romania should ... Read more

Valentin Lazea: Absorption of EU funds could lead to a 4.5% increase of potential GDP

The International Monetary Fund (IMF) told the officials of the National Bank of Romania (BNR) that a 95% absorption of the European funds would lead ... Read more