Four impact scenarios of OUG 114, as they were presented by Florin Georgescu to Liviu Dragnea and C.P. Tariceanu
The tax on bank assets, called the “tax on greed” by OUG 114 authors who imposed it, may reduce the economic growth by 0.6-1.1 percentage… Mai mult›
Hourly labour costs grew by 13.09% in the fourth quarter of 2018 compared to the same period in 2017, according to data announced by INS.… Mai mult›
Bulgaria vs. Romania: Reform and results of tax authority in Sofia and counter-reform and its consequences in Bucharest
Bulgarian tax authorities, which have successfully implemented a modernization program with World Bank’s support, a program that Romania abandoned after six years of delays and… Mai mult›
The general consolidated budget ended the first month of 2019 with a surplus of RON 717 million or 0.07% of the estimated GDP for the… Mai mult›
Finance throws away for good contract for ANAF modernization with World Bank: 6 years and EUR 18 million down the drain
Sources close to talks with the World Bank have stated for cursdeguvernare.ro that the Finance Ministry notified the financial institution in November 2018 that it… Mai mult›
de Marin Pana , 12.11.2018
The living standard in Romania increased significantly due to an accelerated wage convergence compared to the EU average and the stagnation in price convergence toward the same average – official data on the 2014-2017 period show.
But this trend decoupling between the two types of convergence (which will inevitably occur over time) can no longer continue.
In terms of wages, the major advantage was precisely the relatively low starting point combined with the rapid increase in relative labour productivity per EMPLOYED person (which has doubled in the last 15 years, from 31% of the EU average in 2003 toward 65% in 2017 and in 2014 went through the level of 57% of the same average).
- Salary convergence vs. prices convergence in some EU states (EU28 average = 100)
- Year Salaries Prices
- Czech Republic
The increase in productivity made possible the coverage of the large gap remained to be closed, in the context of a small labour remuneration share of GDP, both in relation to the Western practice and the situation in former colleagues from the Socialist bloc that joined the EU.
This opportunity is being closed, even though it can still be used in the medium term.
With regard to price convergence, measures taken at the mid of 2010, in the crisis period, allowed afterwards, by the base effect, the lowering of the general level with the reduction of standard VAT from 24% to 20% and then to 19% combined with the general decrease toward the reduced rate on food products, where we hold the European record in terms of share in the consumer basket.
But this is where the problem is. VAT cuts (leaving aside the fact that budget revenues have fallen to the smallest share of GDP in the EU, except for Ireland) have been of a short-term nature and cannot be repeated. The plateau of the price alignment trend towards the EU average went increasingly upwards during 2018.
At an annual average HICP inflation that will go somewhere above four percentage points (4.7% would be the forecast according to the national methodology) we shall add, taking also into account the marginal RON devaluation against the European single currency (estimated to go from 4.57 lei/euro to 4.65 lei/euro), something between two and three percentage points to the ratio between prices in Romania and the European average.
Percentages that will seriously erode real incomes, for the first time in four years when we got used to not really considering either price increases masked by tax cuts or a RON devaluation, small but unforeseen in the forecast scenarios presented last year (from 4.56 lei/euro, November 2017 forecast presented an average exchange rate of 4.55 lei/euro for 2018).
CSMN net average wage forecast (2018-2022)
An interesting coincidence, another four years with a cumulative 34% increase in net average wage (of course, again without any increase in RON/euro exchange rate, but if only stagnated, because expectations of the vast majority of bank specialists slightly tend toward the opposite direction).
Only this time, price convergence (especially in the context of the stability of the exchange rate) will work as clearly as possible. As we can see from the experience of Hungary or the Czech Republic, positioned slightly ahead of us on the way to the West. Or, better and worth to remember, Poland’s experience, which has not plunged into wage increases and maintained prices under control much better.
What we need to remember is that the increase in purchasing power and living standards can be made only to the extent that wages converge faster than prices. For now, it seems natural to us from the position of a country that is catching up. But it would not hurt to see in the case of big European economies, which are also our main trade partners, what can happen as we go to the upper level with the incomes compared to the productivity.
Italy has adjusted incomes quite significantly, without the price reaction to occur to the same extent, and France, which was shyer, continued to have a relative price increase. Not even the European engine, Germany, has managed to raise incomes beyond the price increase.
In other words, once the price convergence induced by the income increase is produced, it will be much harder, if not impossible, to get back to the starting point by lowering incomes (not to mention, if you remember, that in the case of pensions, which are paid also from salaries, it is not possible to do that, for legal reasons). Of course, unless we apply the emergency adjustment to the exchange rate, which would cause us a lot of trouble.Therefore, in the game between convergence of incomes and price convergence, a game that will run differently over the next four years compared to the previous four years, the dosage of increases will have to be made with much more care, without falling into the error of incomplete induction (if we applied it and that worked without breaking the economic balance, it will work every time).
The result of the game, depending on how able we shall be to do that, and how well we shall know what players to send on the field, will be seen in 2022. When, according to some commendable intentions, we are to have Maastricht indicators updated (without having them lost along the way, now we have our pockets open and are running quite fast) and enter the antechamber for the euro adoption in 2024.
Lăsați un comentariu
ECOFIN / Tax havens list has been updated. Politico: Eugen Teodorovici took EU Finance Ministers by surprise
Finance Ministers of the EU voted on Tuesday at the third meeting of the Council for Economic and Financial Affairs (ECOFIN) chaired by Romania, the… Mai mult›
Dozens of companies, mayoralties, sports teams, public figures, organizations and many ordinary people joined the protest "Romania wants motorways". Of course, the country did not… Mai mult›
Facebook announced Thursday that it has closed hundreds of false accounts promoting false content in the UK and in Romania and this is the first… Mai mult›
Laura Codruta Kovesi was indicted on Thursday in a second case. The section for investigating the crimes committed by magistrates accused her of having led… Mai mult›
The draft law on the so-called repatriation of Romania's gold reserve is either a populist diversion or another attempt to remove gold from the administration… Mai mult›
The protest of magistrates from Cluj Napoca. More than 200 prosecutors and judges, with white bands on their arm, came in front of the local… Mai mult›
Laws on judiciary, amended again by OUG: judges who were once prosecutors may be appointed as prosecutors
The Government approved on Tuesday an OUG that was not publicly debated, which amends several provisions from laws on the judiciary that refer to prosecutors… Mai mult›
"Iceberg" operation: ANAF announces that it selected 487 companies which are to be audited based on risk analysis
Virgil Pirvulescu, Vice President of ANAF at PwC Annual Tax Conference The National Agency for Tax Administration (ANAF) has identified 487 large and medium-sized companies… Mai mult›
Commissioner Corina Cretu: There is a risk that Magurele Laser will not be completed during this budget implementation
In the absence of a rapid response from the Romanian Government to the European Commission, there is a risk that Magurele Laser can no longer… Mai mult›
The Presidential Administration announced on Friday that President Klaus Iohannis, "as the head of Romania’s foreign policy decisions and Romania's representative at the external level,… Mai mult›
Further to the message on the impact of OUG 114/2018 transmitted on Thursday to the organizations in the Coalition for Development of Romania (CDR), AmCham… Mai mult›
Finance minister stopped borrowing money from the market. Teodorovici: We have funding resources for minimum six months
Minister of Public Finance (MFP), Eugen Orlando Teodorovici, has ordered to stop borrowing operations on the market because MFF would have all the money needed… Mai mult›
BNR: If we sold foreign currency to defend Romanian leu, as PSD wants, interest rates would explode and ROBOR would go over 5-7 percentage points
The National Bank of Romania wants a "loyal cooperation" with the Ministry of Public Finance, and that involves a prior consultation with the central bank… Mai mult›
The tax on bank assets was not included in the 2019 draft budget, published on Thursday evening by the Ministry of Public Finance (MFP). According… Mai mult›