Social Democrats And Liberals Plan To Revert To Progressive Taxation

05.30.2011 ZF English

The Social-Liberal Union (USL, made up of PSD and PNL) plans to boost the budget revenues from 32% of the gross domestic product at present to 38% of GDP by widening the taxation base, likely to be spurred by the cut in the wage tax and social security contributions, if it wins 2012 elections.

The Social-Liberal Union (USL, made up of PSD and PNL) at the end of last week launched its economic plan, which it says it will implement if it wins the legislative elections of 2012, a document that has as a final target boosting the state's revenues as a weight in GDP from 32% at present to 38% (by widening the taxation base, likely to be spurred by the cut in the wage tax and social security contributions).

PSD (Social Democratic Party) and PNL (National Liberal Party) plan to reinstate progressive taxation, but "downwardly", in that the income tax for high salaries will not exceed the current level of the 16% flat tax.

Thus, there would be an 8% tax rate for incomes of up to 800 lei (less than EUR200) per month, a 12% rate for incomes ranging between RON800/month and RON1,600/month and a last tax bracket of 16% for incomes topping 1,600 lei/month.

In parallel, the minimum wage would rise from RON600 to RON800 per month.

The value added tax rate would fall gradually until the end of the four years of ruling from 24% to 19%.

In line with the document brought under debate a year and a half ahead of elections, the target of the proposed steps for the labor market is the creation of one million new jobs (from 4.09 million employees this February, according to the National Statistics Institute).

Social-Liberal Union's plan does not detail each move in terms of the impact over the budget (a tax drop will supposedly entail an initial drop in revenues), which has provided PDL (Democratic-Liberal Party, currently in power) with ammunition.

Former economy minister Adriean Videanu yesterday maintained that USL's vision was insufficiently grounded and that the impact of the steps proposed by the union amounted to EUR5 billion in the consolidated budget, which would widen the deficit by 4% annually. (EUR1=RON4.315)