Foreign capital in Romania and the EU – proportion of added value. Observations, lessons, calculations
Romania ranks fourth among the EU member states in terms of foreign-controlled enterprises’ added value share in the national economy, according to a recently concluded… Mai mult›
Inflation exceeds 4% threshold. Solution – Correlation between income growth and economic performance
Consumer prices for the population increased by 0.49% in March 2019, which is significantly below the previous months but higher than in the same month… Mai mult›
Direct damages caused by the “greed ordinance” are currently measured in many billions of euros, according to estimates of affected companies and independent analysts. Damages… Mai mult›
PIAROM study / Foreign companies have half the profitability of domestic companies. Productivity ratio is the opposite
2017 was an exceptional year for Romanian companies system in terms of profitability and registered a general margin of 8%. Statistics also show that the… Mai mult›
How does Romania stand with taxation compared to other EU countries – and where it is with related revenues?
Authorities have borrowed EUR 3 billion from foreign markets yesterday to finance the current year’s deficit. Much: both for one day and in general. A… Mai mult›
de Marin Pana , 29.10.2018
The Council of Economic Programming (CPE), a seven-member body established one year ago having the same chairman as the National Commission for Strategy and Prognosis (CNSP), proposed the increase in the minimum wage as of November 1, from RON 1,900 to RON 2,080 and presented a series of arguments in this respect.
If this measure was adopted, a minimum value of RON 2,350 lei would also be added for people with higher education or those without higher education who have a work seniority of more than 15 years.
We briefly present the motivation displayed on CNSP’s website with the effects that would be spread into the economy:
- The increase in the national minimum wage is necessary, considering the acute shortage of workforce we are facing. At the same time, that would reduce social inequalities (we rank 7th in the EU from this point of view by Gini coefficient) and would increase youth employment rate by 20%, corresponding to a 10% increase, if econometric data for 2000-2018 maintained. Theoretically valid arguments.
- The idea is to divide more equitably the benefits of the economic growth and allow a more smooth transition to a higher income category. With a 13.3% poverty risk for full-time employees (only 11.2% in Greece) and a 61.1% poverty risk for people working part-time (at a far distance from Bulgaria, 35.6%), last year we ranked first in the EU.
- The argument that in Romania only 36% of GDP is allocated to the remuneration of employees and 55% to the remuneration of capital (the remainder, to indirect taxes minus subsidies) is also valid, especially if we consider the increase to 38% in 2019 and the reaching of the 40% threshold in 2021. Best references are the EU average of 47.3% and Poland, with 38.6%.
- There is also a chart showing us as clear European champions (twice the result of the next country on in the ranking) both by the increase in the hourly work productivity (39.2%) and the increase in productivity per employed person (31.9%) between 2012 and 2017. Latvia comes first behind us, with less than 20% and 14%, respectively. To be noted, in August 2012, we were though below 120% by purchasing power compared to October 1990 reference (the last month before price liberalization) and in August 2018 we went up to over 190%, with an advance of about 60%, well above the labour productivity increase.
- The increase in the national minimum wage would have a positive impact estimated at 0.15% on the economic growth of the current year and at 0.8% in 2019. The idea would be that “increasing the minimum wage stimulates consumption and the aggregate demand, and implicitly the economic growth”. Obviously, but the question is whether we should stimulate economic growth beyond the potential.
- Based on the econometric analysis, increasing the national minimum wage leads to the growth of the net wage, and a 10% change in the net wage could influence the inflation rate by 0.5%, with a gap of about a quarter. We have simplified the CPE assertion, which considers this influence to be insignificant. However, related to a target of 2.5% plus/minus 1%, half a percentage points counts.
- Lastly, it is launched the idea of maintaining a minimum ratio of 45% between the national gross minimum wage and the national gross average wage (SMB), along with a planning that would meet this criterion. On October 1, 2019, SMB would increase to RON 2,250 and on October 1, 2020, it would reach RON 2,430, by an increase pace of about eight percentage points in both cases. The annual SMB average will complicate, of course, with nine months at a lower level and three months at an increased level, around the elections date. For 2019, SMB would be at an average of RON 2,122 (45.6% of the gross average salary projected at RON 4,657), and it would reach RON 2,295 in 2020 (45.9% of the gross average salary projected at RON 5,002).
Real effects: Increase obtained by employees, below the increase in the state budget
More up to date, it remains to be discussed whether about one hundred RON in extra money obtained per month for the national minimum wage would sensitively change the situation we are in.
to what extent would that increase the employment of young people, equalize living standards and increase the capacity of the budget to fall within the 3% of GDP threshold?
- Effects of adjusting the national minimum wage as of November 1, 2018
- (CNSP’s proposal, people with no high education and less the 15 years of seniority, RON)
- National gross minimum wage (RON)
- National net minimum wage (RON)
- Taxes paid to state budget (RON)
- Costs for the company (RON)
We can see that, somewhat surprisingly for the so-called flat tax rate, at a 9.5% increase in the national gross minimum wage, a smaller increase in the net payment (8.7%) would be obtained, but an amount by 10.6% higher paid to the state budget.
That could count in terms of the increase in revenue collection in the two months remaining from 2018 (with the observation that wages for December will be paid in January).For companies, the cost of a job paid at the national minimum wage level would suddenly increase at the end of the year by RON 184 per month or RON 368 lei overall. Money that was not planned in the initial budget because they had no way of knowing what measures would be taken and they have the habit to draft budgets based on the calendar year rather than the electoral calendar.
The only good part is that next year they might know what labour cost they would consider. Unless the economic policy would also adjust.
Lăsați un comentariu
Deveselu shield is undergoing an upgrade process; the US provides alternative defence capabilities with THAAD systems
Aegis Ashore anti-missile system installed at Deveselu 99 Military Base will go in the next period through a previously planned upgrade process, the MApN announced… Mai mult›
How 2019 began: Investments, allocations by 78.5% lower than the same period of 2018. 21% decrease in co-financing for attracting European funds
The consolidated general budget recorded a deficit of 0.5% of GDP in the first two months of 2019 namely RON 5.2 billion, a "performance" only… Mai mult›
Romania's GDP exceeded Portugal’s in 2018: which has a population two times lower and a GDP/inhabitant twice as high
Romania's economy exceeded, at current prices in euros, Portugal's economy in 2018, a country with a population and a surface two times smaller as Romania.… Mai mult›
The Ministry of Public Finance published Tuesday evening, a day and a half before the approval in the Government, the draft OUG that amends the… Mai mult›
The Justice Ministry has prepared the two OUG drafts for which the coalition has put much pressure on the Justice Minister Tudorel Toader before granting… Mai mult›
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›