Tax cuts bring more money to the budget: a truth Exchequer's administrators have continually refused to believe due to their institutional inabilities was proven to be more than correct by the data of the consolidated state budget for the first half of the year.
The figures from the comparison of the first half of 2004 with that of 2003 are sufficiently convincing. Social security contributions dropped 3%, while budgetary revenues derived from those same contributions rose from 4.5% to 4.6% of GDP; and the lower rate of VAT of 9% was introduced and subsequent budgetary revenues rose from 3.2% to 3.8% of GDP. And all this happened amid a growth in GDP of no less than 6.6%, meaning that the real increase in revenues was higher still.
Since the beneficiary of the reduced social security contributions was the employer, it can be said that the relaxation was reflected in profitability gains due to the lower labour costs. At any rate, budgetary revenues derived from profit tax went up from 1 to 1.3% of the GDP projected for 2004 (55bn euros). This increase was also helped by the elimination of Petrom's obligation to pay the drilling tax for oil deposits and yet more by the increase in the profit tax levied on exporters from 12.5% to 25%.
This was also the effect of a consolidation of the Exchequer's ability to collect its money, while the increased revenues are high enough to prove that tax cuts do not necessarily translate into lost revenues. It was this possibility that worried the Ministry of Finance every time the issue of tax adjustments was brought up. "We are fully aware that the taxation of labour in Romania is the most aggressive in Europe, but we cannot possibly risk jeopardising the pension system by too steep a cut," explained the Minister of Finance. There was also the scarecrow of the IMF (though in fact the IMF had consistently recommended cutting social security contributions before other taxes), which, aware of the poor administrative capacity of the Exchequer and the lack of efficient bankruptcy legislation, clearly urged caution in terms of fiscal relaxation.
Pentru alte știri, analize, articole și informații din business în timp real urmărește Ziarul Financiar pe WhatsApp Channels
