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| WILL PENSION INCREASES LEAD TO TAX RISES? (29.06.2007) |
| (2007-06-29) |
| Last updated: 2007-07-02 16:36 EET |
Pensioners have been the big losers during the post-Communist transition. As employees of the socialist economy, they never failed to pay their taxes into the social security system. Right after the 1989 revolution, this machinery collapsed. The national currency, the leu, experienced a fast pace depreciation, with prices skyrocketing. The average pensioner struggles to cover daily expenses – basic food products, medicines and bills.
Too old or sick to train for a new profession or look for another job, pensioners can no longer take advantage of the dynamic labour market. In a long due and rather modest move, the political class decided to try to mend this injustice. Initiated by the Social Democratic Party (in opposition) and backed by the minority government made up of the National Liberal Party and the Democratic Union of Ethnic Hungarians in Romania, the law on pension increases was passed with unusual unanimity by the Chamber of Deputies. Romania’s 6 million pensioners account for about 2 billion euros in expenses a year from the state budget. The Fitch Ratings evaluation agency warns that such increases run the risk of overheating the economy, triggering the depreciation of the leu. What’s more, this might have a negative impact on country ratings. Economic analyst Liviu Voinea:
“It’s only natural for an economic upturn to be reflected in wages and pensions, 8 years on. But in my view, the number 1 problem is where the budgetary resources can be found, since we’re discussing a law which has already been passed, and which we can no longer influence.”
Finance and economy minister Varujan Vosganian firmly rejected the solution of tax increases. He claims, on an optimistic note, that funding can be found from the following sources: improved collection of funds for the state budget, economic growth and a higher number of employees, as well as a drop in inflation. Prime Minister Calin Popescu Tariceanu voiced his belief that higher pensions will not jeopardize the macro-economic balance. Marius Nitu, a journalist with the Gandul daily paper, is sceptical. He believes that politicians actually lack confidence as far as their measures are concerned. He says that if we are to be cynical, we could say pension increases represent a mere electoral investment. Marius Nitu:
“This is clearly a political decision with an electoral tinge. The National Liberal Party has simply bowed to the blackmail pressure exerted by the Social Democratic Party and, in order for the Tariceanu government to carry on, everybody has keenly voted for this hefty pension increase. But nobody actually knows what the source of this money will be. We are obviously getting ready for elections and nobody can afford to ignore the power of the 6 million pensioners currently living in Romania.”
(Bogdan Matei)
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