Download Progress Report on Fiscal Policies

Progress Report on Fiscal Policies
November 09 - 13, 2015
ISSUE MONITORING
A document prepared by:
The Centre for Public Policies Monitoring
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The most important news of the week
With the new PM, Dacian Cioloș, awaiting the investiture vote, the fiscal sector may
experience changes. The two parties that might vote against Cioloș, PSD and ALDE, have their
own fiscal requirements. PSD demands that the new PM continues the fiscal policies initiated by
former PM Victor Ponta, namely the new Tax Code, while ALDE demands that Cioloș maintains
the current taxation level or even lower it. Facing these two conditions, the new Cabinet has to
take into account the warning issued by the European Commission on the budgetary deficit, but
also to meet the forecast of over 4% economic growth in 2016.
EC casts a stern look on Romania’s fiscal changes
According to a report released by the European Commission, Romania’s economy is
expected to continue its growth in 2016 and consolidate it in 2017, but warns that the stimuli
contained in the Fiscal Code puts it at risk. The new Fiscal Code, one of the last legacies of Ponta’s
government, brings increases in the salaries of budgetary workers and cuts in a large share of taxes,
taking the budget deficit to an alarming level, CE warns.
Romania’s GDP increased 3.8 percent in the first half of 2015. Though internal
consumption had favorable effects on the economy, the drought that hit agriculture is expected to
slow down the final economy rise to 3.5 percent at 2015 yearend. Estimates put GDP growth to
4.1 percent in 2016, mainly due to the cut in standard VAT rate and supported by the labor market
and deflation.
No significant rise in the foodstuff prices after the cut of VAT
The monthly analysis of the data made available by the major retailers does not point to a
significant rise in the foodstuff prices after the authorities announced measures to cut the valueadded tax (VAT), shows an annual report of the Competition Council on key sectors. The price of
the 36-foods basket failed to record significant fluctuations, as it went up 0.24 percent on average
in this April from March, the document says.
Once the slashed VAT was implemented in early June, the average monthly price of the
basket dropped 11.9 percent from 308.5 lei down to 271.9 lei. The situation amounts to a nearly
full conveyance of the VAT cut from the retailers further to the end-consumers (slashing the VAT
from 24 percent to 9 percent would translate into 12.1 percent price cut).
The most important price fluctuations were seen in fruit and vegetables, with the dairy
products coming next, most likely being the result of the seasonal effects. As for traditional trade,
the processed data shows the average sale prices dropped in the early days after the VAT cut.
Nevertheless, their impact on prices is only partial, since the decrease in the overall cost of the
goods basket was of some 9.1 percent as compared to a possible maximum of 12.1 percent.
The price drops in modern trade were more pronounced than in traditional trade, with the
VAT cut being nearly totally conveyed to the consumers. Trade in foodstuffs is a sector of high
importance in the Romanian economy, given that last year 19.7 percent on average of the total
income of the households was assigned to purchasing foodstuffs.
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Inflation has entered the negative domain in June 2015, following a VAT cut on food
products, which sparked the internal consumption during the following months. Inflation is
expected to reach -0.4 percent in 2015, stay negative until mid-2016, but recover in 2017.
The negative result of the inflation in 2016 will come from the standard VAT rate reduction
by 4 percentage points, taking it to -0.3 percent. Despite an additional 1 percent VAT cut in 2017,
inflation is forecast to reach 2.3 percent on annual average. Still, possible increases of minimum
and public wages tilt the risks to the upside in 2016 and 2017.
Erste: The new government could take measures for the compensation of the damage
of fiscal relaxation
Fiscal relaxation adopted by the former government would not be reversed, taking into
consideration the political consensus but the new executive could come with a series of measures
which could keep under control the damage provoked by excess, according to a Erste Group
analysis.
The Erste Group analysts consider that the fiscal relaxation measures announced by the
former government is still a risk for 2016. „Taking into consideration the political consensus for
the voting of these decisions, we don’t expect to have them reversed. However, the new
government could come with a series of measures to keep under control the damage provoked by
the excessive decisions” a note of Erste Group says.
The government reduced this year the tax for special constructions and starting with June
VAT for food was revised at the level of 9%. Starting January next year, the standard quota of
VAT will be reduced from 24% to 20% in 2017 being 19%.At the same time, the new fiscal code
includes the elimination starting with 2017 of the supplementary excise for fuel and of the tax for
special constructions. From this point of view, the bank analysts appreciate that the change of the
government is a positive factor even if miracles cannot be expected over night.
At the same time, the Erste Group analysts do not expect surprises in the parliament where
there is already an ad-hoc majority for the support of the new government. This fact is considered
as favourable for the continuation of the reforms and the fight against corruption.
Even so, it is expected that the new premier Dacian Ciolos negotiate with the political parties a
governmental agenda which should include priorities for next year, until elections.
Evolution of existing bills

Name: B545/2015 Legislative proposal for the introduction of a specific tax for tourism
companies
Initiators: PSD Deputy Mircea - Titus Dobre
Status: The bill was registered to the Senate for debate on October 23 and sent for notice to the
Legislative Council and to the Government for a point of view on October 27.
Description: The draft bill aims at defining and regulating the specific tax targeting Romanian
legal persons that are active in the hospitality industry, hotels, resorts, RV parks and camps,
restaurants, catering, bars or other alcohol and beverage selling activities. In this case, an
emergency procedure will be demanded so that the draft bill is enforced at the same time with the
new Fiscal Code. The restaurants will be taxed annually with RON 1,800 - RON 38,400, and the
owners of bars and discos will be taxed up to RON 38,600. Also, hotels and pensions will be taxed
with RON 135 - RON 891 at the accommodation place.
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
Name: Pl-x 689/2015 Draft bill for the approval of Government Ordinance No. 39/2015 on tax
offence record
Initiators: The Romanian Government
Status: On October 19, 2015, the draft bill was submitted for report to the Committee for Budget,
Finances and Banks, the deadline for issuing the report being November 3, 2015. The bill is to
receive a notice from the Committee for Legal Matters, Discipline, and Immunities.
Description: The Emergency Ordinance aims at improving taxpayers’ fiscal behavior, and at
increasing of voluntary conformation with the projected target of improving the collection rates to
the consolidated general budget. The GEO also aims at improving and adopting the regulation on
tax offense record by establishing a unitary and coherent framework of organizing the tax offense
record which should position the specific activities of prevention of tax evasion by high risk tax
payers, respectively by those whose tax offence record shows flagrant offenses of fiscal legislation.

Name: L465/2015 Legislative proposal on the electronic headquarters of economic operators
Initiators: Teodor Atanasiu
Status: The Committee for Economic Affairs, Industries and Services submitted the endorsement
on November 11, 2015. Previously, the Committee issued a favorable report for the legislative
proposal on October 19, 2015. The bill also received a favorable notice from the Committee for
Legal Matters, Appointments, Discipline, Immunities and Validations on September 28.
Description: The draft bill aims at facilitating the communication, and at eliminating costs
generated by the printing of forms, decisions and summons as well as other administrative
documents while eliminating the delays generated by the impossibility of proving the submission
of such documents through the postal services. The draft proposes each economic agent be issued
an e-mail address at the moment of fiscal registration. The e-mail address identifies the economic
agent and is considered the equivalent of the “electronic headquarter.”

Name: L556/2015 Bill for approving Draft Emergency Ordinance on granting certain fiscal
incentives
Initiators: The Government of Romania
Status: The legislative initiative received an approval report, with amendments from the
Committee for Budget, Finance, Banking and Capital Market. Previously, on November 10, 2015
the Committee for Legal, Appointments, Discipline, Immunities and Validation also sent a
favorable notice for the proposal. On November 9, 2015 the Committee for Economy, Industry and
Services also sent a favorable notice for the legislative initiative.
Description: The draft bill regulates a number of fiscal incentives for taxpayers who have debts to
the state. Late payment fees and owed interests are to be canceled under certain provisions.
According to the bill, taxpayers who pay their taxes registered before September 30, 2015 by
March 31, 2016 could be exempted from paying the late payment fees.
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Relevant news

Title: Economia României a crescut cu 1,4% în trimestrul trei; la nouă luni, avansul PIB
a fost de 3,7%
Source: agerpres.ro
Date: 13.11.2015

Title: Proiectul bugetului de stat va fi finalizat vineri de Ministerul Finanţelor şi depus la
Guvern - surse
Source: economica.net
Date: 11.11.2015

Title: Noul cod fiscal va stimula consumul "cu efecte în 2016 şi 2017"
Source: romania-actualitati.ro
Date: 11.11.2015

Title: Erste: New Gov’t could take compensation measures for fiscal easing damages
Source: romaniajournal.ro
Date: 11.11.2015

Title: National Bank revises inflation to include Fiscal Code amendments
Source: business-review.eu
Date: 10.11.2015

Title: BNR Governor pleased with the economy. All macroeconomic indicators are in the
green and well consolidated
Source: nineoclock.ro
Date: 10.11.2015

Title: BVB's Anghel: New Tax Code will continue to stimulate consumption next year
Source: agerpres.ro
Date: 10.11.2015

Title: Romania’s trade deficit rises 28 percent to EUR 5.5 bln during first nine months
Source: business-review.eu
Date: 09.11.2015

Title: Câştigul salarial net a fost de 9,92 lei/oră, anul trecut
Source: capital.ro
Date: 09.11.2015
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