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IMF representatives express concern over the new Romanian Tax Code

The Tax Code as approved by the Romanian Parliament would generate an increase of the budget deficit to 3pct of the Gross Domestic Product (GDP); it would endanger the economic achievements obtained by Romania in the past years and cause a return to austerity, reads the document "A Critical Decision" signed by Andrea Schaechter, International Monetary Fund mission chief for Romania, and Guillermo Tolosa, IMF resident representative for Bulgaria and Romania. "Romania has made significant strides over the last seven years to fix its embattled public finances. We are concerned that the Fiscal Code in its current form would put these achievements at risk. It would entail a yearly loss of revenues of about 2. 2 percent of GDP and an increase in the fiscal deficit to at least 3 percent of GDP, putting public debt on an upward trajectory. Alternatively, to keep the deficit in check it would require a downsizing of government expenditure a s well as forgoing new spending initiatives, including for infrastructure, defense, wages, health or education. Is there an alternative third way that would allow Romania to gradually lower its public debt, alleviate the tax burden, and fund new projects? We believe there is, if the scope and speed of tax policy measures as well as new spending plans are more moderate. Below we put forward some arguments for adjusting the Fiscal Code with such an option in mind. The IMF representatives mention the need for a sustainable fiscal policy with well timed measures.“The current proposed tax package is almost exclusively directed to spur consumption, which is already the fastest growing part of the economy. The benefits of consumption — boosting tax policy initiatives are likely to be short — lived if there is little growth in investment.” The document offers the path to concrete actions on three levels: better tax collection, more efficient public spending, and shifts from nationally financed investment toward EU — funded projects. “In summary. revisiting the Fiscal Code in Parliament is an opportunity to clarify the medium — term fiscal priorities, assess realistically the size of fiscal space and the speed at which it can be created, and rescale the proposed tax cuts accordingly. It will be a critical decision to preserve the hard — won achievements of macroeconomic stability." The text published on the web page of the Resident Representative Office in Romania.
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