Finance minister Mihai Tanasescu, deemed as a strong supporter of the flat tax project, will attend the Government meeting today, where he will present another variant of the Fiscal Code, under which the current progressive tax system will be maintained next year. According to the law draft on the Fiscal Code endorsement, the Government will submit to Parliament, for debate, the proposal to introduce the flat tax as of January 1, 2005.
It was a short-lived illusion that only lasted three weeks - the thought that Romania may actually take a real fiscal reform step next year, by waiving progressive tax. Eventually, the "Party" made the decision, favouring the trade unions (at least one third of the voters), which had opposed the flat tax from the start.
On Monday, before the Finance minister met with the Association of Romanian Businesspersons (AOAR) for a so-called attempt at popularising the flat tax project, PSD (Social Democrat Party) had decided that progressive tax would maintain in 2004. The decision was made without even waiting for the results of the poll the Government had ordered at IMAS (specialised polling institute).
The concern for the union demands, but also for the interests of other patronage groups, does not stop here. The Fiscal Code draft that will be discussed today by the Government stipulates generous deductions, starting with house redecoration expenses and going all the way to health insurance and optional pensions, a measure that is supposed to boost the growth of certain economic sectors.
And so, Romania is bracing for yet another fiscal policy experiment, called the one-year deduction plan. All that when the introduction of the flat tax is scheduled for 2005, although it is incompatible with such a deduction system. And 2004 will be another transition year, when, in accordance with the party's wishes, the Finance Ministry is walking again all over the much talked-about fiscal stability principle, which should be enforced by the Fiscal Code itself.
In case anyone doubted it, fiscal policy does not change in Romania because there are solid arguments in favour of the respective change, because specialists support the change or because the same change took place in other countries, which stood only to gain from it.
Two weeks ago, the Government gave its agreement in principle to introducing the flat tax in 2004. Finance minister Mihai Tanasescu assumed responsibility for the effects of such a measure. Specialists and businessmen immediately voiced support for this step. However, none of this mattered when it came to party motives. The flat tax will not be applied in 2004, much to the satisfaction of President Iliescu, the team of PSD economists led by Florin Georgescu, former Finance minister and now the head of the Budget-Finance Commission in the Chamber of Deputies and, last but not least, the trade unions.
razvan.voican@zf.ro
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