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Southeast Europe
June 30, 2017 www.intellinews.com I Page 12
Romania’s new government comes up with radically revised fiscal policy
bne IntelliNews
Romania’s parliament endorsed the new cabinet of Prime Minister Mihai Tudose by 275 votes to 102 on June 29. Tudose replaces Sorin Grindeanu, who was dismissed for delays in implementing the gov- erning program adopted after the 2016 general elec- tion. Broadly similar policies were expected under Tudose, but instead he prompted surprise and panic by unveiling a governing program that has at the core a radically revised fiscal and budgetary policy.
The ruling coalition formed by the senior ruling Social Democratic Party (PSD) and the Alliance of Liberals and Democrats (Alde), supported by the Democratic Alliance of Hungarians in Romania (UDMR), voted in a new cabinet. However, it is still unclear whether the fiscal reforms announced by Tudose are fully supported by Alde.
The paternity of the governing program also remains unclear. Hotnews.ro quoted unofficial sources who said central bank vice-governor Flor- in Georgescu and finance ministry state secretary Gheorghe Gherghina (the expert who has drafted Romania’s budgets for decades) contributed to the fiscal section. However, former finance minister Darius Valcov, who resigned when a corruption probe was launched against him but remains an in-house expert for the PSD, and other politicians are believed to have played the main role in au- thoring the populist strategy.
In general, the new program aims to distribute wealth more equitably. It aims to increase the share of labour in Romania’s GDP from 32-34% currently to above 40%, “versus 50-60% average
Prime Minister Mihai Tudose outlines his plans to the parliament.
in Europe,” the strategy reads. It also envisages higher taxes for companies.
The sudden launch of a new governing program comes as a surprise after PSD leader Liviu Drag- nea had threatened to resign if the original was not followed point by point and in a timely fashion. Grindeanu was dismissed precisely because he had not implemented the earlier program. But just six months after the December 2016 general election, the program appears to have been totally revised. This is likely to undermine the ruling coa- lition’s credibility, which has already been strained by the very public power struggle between Drag- nea and Grindeanu.
In addition, political support for the new governing program is not guaranteed. According to unofficial sources, Alde head Calin Popescu Tariceanu had been taken by surprise by the fiscal innovations disclosed to lawmakers by new Finance Minister Ionut Misa. Eventually, Alde voted in the new gov- ernment, thereby also endorsing the newprogram — but the party still has the power to block specif- ic policies that need a majority vote in parliament.
The new strategy has also caused concern among investors. Romania’s association of investors has summoned a press conference for June 30 in re- sponse to the new ruling strategy.
According to the program, the key fiscal innova- tions are the turnover tax to replace the 16% profit tax, and the global income tax to replace the 16% income tax.